Big shock to Hostel-PG residents, 12% GST now applied to rent

Digital Desk: The Authority of Advance Ruling (AAR) announced in two different cases that a 12% GST will now be applied to rent paid for hostel accommodations and by paying guests. 

Hostels, according to the Bengaluru bench of the Authority of Advance Ruling (AAR), are not comparable to residential dwelling units and so are not exempt from Goods and Services Tax (GST).

The AAR stated in an advance judgement requested by Srisai Luxurious Stay LLP that GST exemption was valid on housing services of up to 1,000/- per day offered by hotels, clubs, campgrounds, etc. until July 17, 2022.

"PG/Hostel Rent paid by inhabitants do not qualify for GST exemption... as the services provided by the applicant are not comparable to renting a residential dwelling for use as a residence," the Bengaluru bench ruled.

The Karnataka AAR's MP Ravi Prasad and Kiran Reddy T ruled that GST on reverse charge will be applicable on the rental to be paid to landowners by the application since the applicant's services are leviable to GST and hence the applicant must seek GST registration, it added.

According to the bench, a residential dwelling is a permanent residence that does not contain a guest house, lodge, or similar establishments.

"In the present case, the applicant in his own admission claims to be providing PG/hostel services which inter alia refer to 'paying guest accommodation/hostel' services and are similar to the guest house and lodging services and, therefore, cannot be regarded as a residential dwelling," the Bengaluru bench said.

Rajat Mohan, the senior partner at AMRG & Associates, predicted that a 12% tax on student housing in dorms and hostels will increase costs for Indian families.

According to Mohan, "the GST council may think about making a policy decision to neutralise the tax cost built into the entire education ecosystem, including student housing."

"The Authority of Advance Ruling has ruled that student hostel accommodation should not be exempt from GST. The reason given is that residential dwelling' should be for the long term," explains AAR

According to tax expert Ved Jain, the argument stated by AAR for levying a 12% GST on hostel or PG lodging is that any residential accommodation should be on a long-term basis. 

However, a hostel or PG lodging that requires sharing numerous beds or multiple persons sharing a shared room does not fit under the definition of "residential dwelling." As a result, such lodgings will not be subject to GST, as stated by AAR.