The GST-Authority for Advance Rulings (AAR) has clarified that hostel rent paid by inhabitants does not qualify for exemption from goods and services tax (GST) as it is not considered a 'residential dwelling.' The ruling pointed out that hostel accommodation with a tariff below Rs 1,000 per day was exempt from GST only until July 17, 2022. Hence, hostel rent will now attract a GST rate of 12%.
In two separate cases, the GST-Authority for Advance Rulings (AAR) has provided clarity on the applicability of goods and services tax (GST) to hostel accommodation rent. The AAR ruled that hostel rent paid by occupants does not fall under the category of a 'residential dwelling' and, therefore, does not qualify for exemption from GST. The ruling impacts hostels that charge above Rs 1,000 per day for accommodation. Prior to July 17, 2022, hostel accommodation with a tariff below Rs 1,000 per day was exempt from GST, but now, it will attract a GST rate of 12%.
The cases brought before the AAR were from two different establishments. The first one was Srisai Luxurious Stay, a Bengaluru-based provider of paying guest accommodation and service apartments. The second case was presented by V.S. Institute and Hostel, located in Noida, which caters to students' residential needs and offers facilities like food, electricity, water, and Wi-Fi.
Both establishments argued that their services should be considered as residential dwellings, and thus, be exempt from GST. However, the AAR disagreed and clarified that a residential dwelling is an accommodation intended for permanent stay and does not include guesthouses, lodges, or similar places. In both cases, the AAR distinguished a residential dwelling from a hostel, leading to the conclusion that hostel accommodation does not qualify for GST exemption.
The Karnataka bench, in particular, emphasized that the accommodation provided by Srisai Luxurious Stay was not considered a residential dwelling, but rather individual rooms that were shared by unrelated individuals. Invoices were raised per bed on a monthly basis, and there was no provision of individual kitchen facilities. The AAR noted that additional facilities such as vehicle parking, washing machine usage, and access to a television were optional and would not be considered bundled services.
With this ruling in place, hostel accommodations charging above Rs 1,000 per day will now be liable to pay GST at a rate of 12%. However, the exemption remains in place for 'residential dwellings' rented for the purpose of residence to GST-unregistered individuals, including salaried individuals, students, and small business owners who are not required to register for GST.
This clarification by the AAR brings a clear distinction between residential dwellings and hostels for GST purposes. Hostel operators will need to ensure compliance with the applicable GST rates to avoid any potential non-compliance issues. On the other hand, individuals renting 'residential dwellings' for personal use can continue to enjoy the GST exemption, benefiting those who are not required to register for GST as per the regulations.
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