GST on Paying Guest and Hostel Accommodation

The Goods and Services Tax (GST) regime has undergone significant evolution in its treatment of Paying Guest (PG) and hostel accommodations, especially with the introduction of Entry 12AA in July 2024. This article examines the taxability of such services, the implications of recent exemptions, and the compliance challenges faced by operators and tenants alike.

2. Historical Taxability and Composite Supply Dynamics

Under SAC 9963, PG and hostel services have traditionally been classified as commercial lodging, attracting 12% GST from 18 July 2022, irrespective of the daily tariff. When bundled with ancillary services such as meals, laundry, or housekeeping, these offerings constitute a composite supply, taxed at the rate applicable to the principal service.

3. Entry 12AA: A Paradigm Shift in GST Policy

The GST Council, via Notification No. 12/2017–CTR, introduced Entry 12AA effective 15 July 2024, providing a major relief to long-term residents:

• Exemption Criteria:
  • Monthly rent not exceeding Rs. 20,000 per person.
  • Minimum stay duration of 90 consecutive days.
• Retrospective Application:
  • As clarified in Circular No. 228/22/2024-GST, the exemption applies retrospectively from 1 July 2017 to 14 July 2024, with no sunset clause for refund claims.
• Operational Impact:
  • Eligible PG/hostel operators are not required to register under GST.
  • Reverse Charge Mechanism (RCM) on rent does not apply.

This exemption aligns with the broader policy objective of distinguishing residential use from commercial lodging, especially for students and working professionals.

4. Judicial and Advance Ruling Landscape

Several judicial pronouncements have reinforced the residential nature of long-term hostel accommodations:

• Thai Mookambikaa Ladies Hostel, rep. by M.K. Tamil Mani Versus Union of India, Tamil Nadu State Appellate Authority for Advance Ruling, The Joint Commissioner of GST (State Tax) – 2024 (3) TMI 1271 – MADRAS HIGH COURT: Held that hostels for girl students and working women qualify as residential dwellings, exempt under Entry 12.
• Taghar Vasudeva Ambrish Versus Appellate Authority For Advance Ruling, Karnataka, Commissioner Of Central Tax Bangalore, Assistant Commissioner Of Commercial Taxes LGSTO-90, Bengaluru – 2022 (2) TMI 780 – KARNATAKA HIGH COURT: Recognized student hostels as residential dwellings, not liable to GST.
• In Re: M/s. Maharashtra Jain Education Society. – 2024 (8) TMI 294 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA: Affirmed exemption for hostels run by educational societies, even for short vacation stays by former students.

However, AAR rulings in 2023 clarified that short-term hostel accommodations—even under Rs.1,000/day—do not qualify as residential dwellings unless they meet the long-term stay criteria.

5. Compliance Challenges and Sectoral Practices

5.1 Composite Supply Thresholds

Operators must carefully assess whether bundled services (e.g., food, internet) push the total value beyond Rs. 20,000/month. Exceeding this threshold disqualifies the exemption under Entry 12AA, even for long stays.

5.2 Informal Sector Risks

A recent viral case from Bengaluru (August 2025) exposed a PG demanding cash-only rent and threatening a 12% GST surcharge for digital payments. Such practices raise concerns of tax evasion, lack of transparency, and non-compliance with invoicing norms.

6. Summary of GST Applicability

7. Recommendations for Stakeholders

For Operators:

• Evaluate eligibility under Entry 12AA.
• Avoid bundling services that breach the Rs.20,000 threshold.
• Maintain proper documentation and issue GST-compliant invoices.

For Tenants:

• Demand transparent billing and GST invoices.
• Avoid cash-only arrangements that may indicate non-compliance.

8. Conclusion

The introduction of Entry 12AA marks a significant shift in GST policy, recognizing the residential nature of long-term PG and hostel accommodations. While the exemption offers relief, it also necessitates rigorous compliance, transparent practices, and accurate classification to avoid litigation and ensure policy alignment.

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