Hostel stays, and PGs in Bengaluru are now taxable under 12% GST

The Authority for Advance Rulings (AAR) in Karnataka has recently clarified the GST exemption for rent paid for hostel accommodations and paying guests. According to their latest ruling, a 12 per cent GST will now be imposed on such rentals. This decision has ended the confusion regarding whether such rentals were exempt from GST.

According to the Bengaluru bench of the Authority of Advance Ruling (AAR), hostels do not qualify as residential dwelling units. They are, therefore, not exempt from the Goods and Services Tax (GST).

It is important to note that no GST levy applies if a house is rented for residential purposes by individuals not required to register for GST.

The Karnataka AAR recently ruled on the case of Srisai Luxurious Stays, a service-apartment provider based in Bengaluru. The ruling stated that if an accommodation offers a room shared by strangers and lacks an individual kitchen facility, it cannot be considered a residential dwelling.

“It could be inferred that residential dwelling is a residential accommodation meant for permanent stay and does not include guest house, lodge or like places. In the instant 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 akin to guest house and lodging services and therefore can't be termed as 'residential dwelling',” the order by the Karnataka AAR stated.

In a similar reference by Noida-based V S Institute & Hostel Pvt Ltd, the Lucknow bench of the AAR said that GST would apply on hostel accommodation costing less than ₹1,000 per day.

The recent ruling could result in higher living expenses for students or working professionals, affecting their daily budget. However, some tax experts believe that the guidelines are ambiguous and may be challenged in the future.

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