Renting residential premises as a hostel to avoid attracting GST: Karnataka HC

Renting residential premises as a hostel to students and working professionals will not incur Goods and Services Tax (GST), the Karnataka High Court has ruled.

Petitioner Taghar Vasudeva Ambrish and co-owners have rented a 42-bedroom property from a company called Twelve Spaces Private Limited. The property has been leased as a hostel to provide long-term accommodation for students and working professionals with a length of stay ranging from 3 months to 12 months.

Decisions AAR, AAAR

The petitioner first came to the Advance Ruling Authority (AAR) with a question as to whether or not the leasing will qualify for GST exemption. AAR ruled out the exemption. Next, the petitioner approached the Advance Ruling Appeal Authority (AAAR), which found that the property rented by the petitioner is a hostel building which is more akin to social housing than a what is commonly referred to as residential accommodation.

Therefore, the property rented by the petitioner cannot be qualified as a residential dwelling and therefore no exemption.

Agreed by this, the petitioner applied to the High Court.

High court decision

After reviewing all the facts and arguments, the Court said that the residential accommodation is rented because the hostel for students and working women falls under the realm of residential accommodation because it is used by students as well as women working for residential purposes. Second, residential accommodation is used for residential purposes.

“It should also be mentioned that the notification does not oblige the tenant to use the premises himself as a residence. Therefore, the benefit of the exemption notification cannot be refused to the applicant on the grounds that the lessee does not use the premises”, declared the Court.

In addition, he clarified that the service provided by the petitioner, namely the rental of residential premises as a hostel for students and professionals, is covered by entry 13 of Notification No. 9/2017 of September 28 2017, namely “Services through the rental of residences”. accommodation for residential use” and therefore eligible for the exemption.

“Few advantages for the occupants”

Commenting on the ruling, Prateek Bansal, Associate Partner (Tax and Customs) at White and Brief, a law firm, said the present order is primarily based on the length of time a dwelling is occupied in order to test whether said dwelling qualifies as a ‘residential dwelling’ or not. However, it should be noted that the CH has not established the principles determining any stay/occupation as “temporary” or “permanent” depending on the length of that stay. Therefore, it will be essential to examine the facts and circumstances of each case to claim the GST exemption.

“While the GST tax exemption for these residential accommodations and hostels is a welcome move for students and professionals across the country, the GST paid by landlords/landlords on the use of various inputs and input services (for the maintenance of said dwellings) would now become a tax-cost, therefore without or with a minimum reduction in prices for the ultimate occupants,” he said.

Moreover, since the present case concerns an advance ruling that binds only the applicant, it will be interesting to see if this position is also taken by the GST authorities of other States.

Published on

February 15, 2022

Linda G. Ibarra