GST on Accommodation Services and Renting for usage of Hostel or Paying Guest

Analysis of GST provisions on Accommodation Services and Renting of Premises for usage of Hostel or Paying Guest Purposes

1. Introduction

The GST treatment of hostel accommodation has become a complex issue after several amendments to Notifications and the introduction of reverse charge on renting services.

This article primarily revolves around two situations wherein –

• The hostel operator provides accommodation to students.
• The landlord rents a property to a hostel operator.

2. Statutory Framework and Applicable Provisions

The GST implications on hostel accommodation arise from a combined reading of relevant exemption entries under Notifications. The primary provisions governing these issues are:

• No. 13 (Notification No. 9/2017- Integrated Tax (Rate)): Provides a use-based exemption for the “renting of residential dwelling for use as residence.” This exemption is based on the nature of use of the property, meaning that the determining factor is whether the premises are used for residential purposes.
• No. 13A (Notification No. 9/2017- Integrated Tax (Rate)): Specifically governs “specified accommodation services” (hostels/PGs), granting exemption only if the rent is less than or equal to Rs.20,000 per person per month and the stay exceeds minimum continuous period of 90 days.
• No. 6AA (Notification No. 10/2017- Integrated Tax (Rate)): Mandates the Reverse Charge Mechanism (RCM) for the “renting of residential dwelling to a registered person,” by shifting the tax liability from landlord to the tenant (the hostel operator) whenever the recipient is GST-registered regardless of the landlord’s registration status.

The issue lies in determining how these provisions operate where a residential property is leased to a GST-registered hostel operator. This has been judicially clarified by Supreme Court in State of Karnataka v. Taghar Vasudeva Ambrish (2025).

3. Hostel Operator Providing Accommodation to Students

 The provision of accommodation by a hostel operator to students constitutes a separate supply under GST, distinct from the lease arrangement between the landlord and hostel operator. At this stage, the applicability of GST is determined based on the tariff charged to students or inmates and the duration of stay.

 3.1. Taxable or Exempt

The applicable tax rates for real estate and accommodation services are prescribed under Notification No. 8/2017–Integrated Tax (Rate) as 18%. However, it is essential to read these alongside the exemption provisions in Notification No. 9/2017- Integrated Tax (Rate) , specifically Serial Nos. 13 and 13A, which govern the renting of residential dwellings and specified accommodation services, respectively. To provide clarity on these exemptions, the relevant extracts from Notification No. 9/2017- Integrated Tax (Rate) are produced below:

Extract of Sl No. 13 & 13A of Notification No. 9/2017- Integrated Tax (Rate)

3.2. Exemption under Entry 13A

The hostel services provided by owners or operators fall within Serial Number 13A of Notification 9/2017-Integrated Tax (Rate). This provision effectively creates a specific exemption for low-value, long-term accommodation. Such services are exempt if two cumulative conditions are met: the supply value is less than or equal to Rs. 20,000 per person per month, and the accommodation is provided for a minimum continuous period of 90 days. To clarify, both conditions must be fulfilled too enjoy exemption. This ensures that standard student housing remains tax-neutral.

3.3. Registration under Section 23

For a hostel operator, Section 23 of the CGST Act provides that any person engaged exclusively in the business of supplying services that are wholly exempt from tax is not liable for registration.

Therefore, if an operator exclusively provides hostel services meeting the Entry 13A criteria, they remain legally exempt from registration. This applies even if their annual aggregate turnover exceeds the Rs.20 Lakh / Rs.10 Lakh threshold (as the case may be) specified in Section 22, as Section 23 acts as a specific exemption that overrides the general turnover-based registration requirements.

4. Landlord Renting Building to Hostel Operator

The renting of a residential building by a landlord to a hostel operator involves a complex interplay between the exemption for residential dwellings and the reverse charge mechanism. While the fundamental nature of the property is determined by its residential end use, the actual taxability of the transaction depends upon the GST registration status of the hostel operator. If the operator is a registered person, the exemption is superseded by Entry 6AA, making GST payable under the reverse charge mechanism. Conversely, if the operator remains unregistered, the transaction maintains its exempt status under Entry 13.

4.1. Taxability of Residential Leasing under Reverse Charge Mechanism (RCM)

The taxability of a lease between a landlord and a hostel operator primarily depends on the GST registration status of the recipient. Under the reverse charge mechanism (RCM), where a residential dwelling is rented to a registered person, the liability to pay GST shifts from the supplier (landlord) to the recipient (hostel operator). To determine the exact scope of this liability, reference must be made to Notification No. 10/2017–Integrated Tax (Rate), as amended, which specifies the categories of services where the recipient is liable to discharge tax under reverse charge.

The relevant extract of Sl. No. 6AA and 6AB of the said notification is produced below:

Extract of Sl. No. 6AA & 6AB of Notification No. 10/2017–Integrated Tax (Rate)

Sl. No 6AA is relevant in the case of renting of Immovable Property for the purpose of running the property as Hostel/PG Premises wherein the inmates resides for longer duration say more then 90 days. Sl No. 6AB shall not be applicable as the property in question shall be classified as Residential Dwellling; which is further being discussed in the succeding paragraphs.

4.2. The “Residential Dwelling” Debate

In cases where hostel operators do not own the property but take it on lease from landlords and subsequently provide accommodation to students or paying guests. The GST treatment of such arrangements had been a matter of litigation until it was settled by the Hon’ble Supreme Court in State of Karnataka v. Taghar Vasudeva Ambrish (2025). The Court clarified that the character of a property as a residential dwelling depends on its end-use, and leasing to a commercial entity does not alter its residential nature if it continues to be used for residence.

In light of this judgment, it can be concluded that where a residential property is rented for use as a hostel or paying guest accommodation, the supply continues to qualify as renting of residential dwelling. Accordingly, where such renting is made to an unregistered person, the exemption under Serial No 13 of Notification No. 9/2017–Integrated Tax (Rate) would apply. However, if the Hostel Operator is a registered person, the supply shall be subject to RCM @18% vide Serial Number 6AA of Notification 10/2017 – Integrated Tax (Rate).

Structural Distinction Between Renting and Accommodation Services

4.3. Property Classification – Commercial vs. Residential

A common question may arise that whether the rented property which otherwise is classified as Commercial Property as per local authority norms will qualify as Residential Dwelling or not. The Courts have addressed this issue and clarified the position based on the following principles:

• A narrow interpretation of Entry 13 limiting the exemption only to cases where the tenant himself uses the property would defeat the legislative intent. The exemption is meant to apply where the property is ultimately used for residential purposes, even if it is leased to an intermediary who further provides it for residential use.
• In the case of hostels, the actual use of the property remains residential, as it is occupied by students or working individuals for living purposes. Imposing GST on such transactions would ultimately pass the burden to the occupants, thereby undermining the objective of the exemption.
• Entry 13 provides an activity-based exemption, not a person-based one. The applicability of the exemption depends on the nature of use of the property (i.e., residential use), and not on the identity or status of the recipient.
• This position is supported by judicial precedent by Honb’l Madras High Court inThai Mookambikaa Ladies Hostel vs Union Of India on 31 August, 2023 wherein the Court emphasized that the classification of premises must be determined based on the nature of use and not by the nature of propoerty.
• Similarly, the Supreme Court in State of Karnataka v. Taghar Vasudeva Ambrish (2025), held that, by its very nature, a students’ hostel constitutes residential use, being a place of lodging or residence for students. The Court further clarified that merely because hostel operators charge consideration from occupants, such accommodation cannot be characterized as commercial or non-residential.

In the matter of in State of Karnataka v. Taghar Vasudeva Ambrish (2025), Honorable Supreme Court has ruled in Para 62 and 63 as under:

 “62. In the present matter, the ultimate use of the property remained unchanged. In other words, it remained as ‘use for residence’ by students/working women. However, if 18% GST is levied on this transaction between the respondent No. 1 and the lessee, the same will be passed on to the students and working professionals which would ultimately lead to a situation where legislative intent behind granting exemption for residential use is defeated.

63. In addition to above, it is pertinent to note that exemption envisaged under Entry 13 is an activity specific exemption and not person specific exemption. There are many exemptions given under GST law which are person specific exemptions and are applicable only when service provider or recipient is among the notified category of persons. On the other hand, there are many exemptions which are activity specific exemptions whereby an activity is given an exemption, and such exemptions are not dependent on the person using the service that is exempt.”

By ruling that the Entry 13 exemption (Notification No. 9/2017-ITR) is strictly activity-based, Honorable Supreme Court have ensured that residential substance prevails over administrative labels. This clarifies that a property’s ‘commercial’ classification by local authorities is irrelevant, protecting the residential character of the dwelling and preventing an unwarranted tax burden on students and professionals throughout the leasing chain.

In the same matter, the Karnataka High Court had also ruled similar judgement which has been ratified by Honorable Supreme Court in Para 69.

“69. In view of the aforesaid discussion, we have reached the conclusion that we should not interfere with the impugned judgment and order passed by the High Court. As a result, both the appeals fail and are hereby dismissed.”

Hence, the judgement of Karnataka High Court in case of Taghar Vasudeva Ambrish vs AAAR, Karnataka is also to be looked upon wherein the Honb’l High Court also categorically covered the matter in its judgement in para 16 as under:

“16. So far as the submission that the petitioner is registered as commercial establishment under the Karnataka Shops and Commercial Establishment Act, 1961 or that a trade licence has been issued by BBMP, suffice it to say that it is wholly irrelevant for the purposes of determining the eligibility of the petitioner under the exemption notification. “

5. Conclusion

The current GST framework for the hostel sector reflects a balance between social welfare and revenue considerations. While the “end-use” principle, as affirmed in Taghar Vasudeva Ambrish (SC), preserves the residential character of such properties, the introduction of Entry 6AA has created a registration-based tax trigger that impacts the manner of taxation for commercial operators. The taxability structure can be summarised in the following tabulation.

******

Disclaimer: The Contents of the Article is as per the opinion of the author’s interpretation of the Statues, Regulatory Framework and Judgements. Alternative views for any of the framed opinion may or may not be be formed.