PG Stay, Hostel Accommodation To Become Costly As It Will Attract 12% GST

The Authority of Advance Ruling (AAR) has ruled that students will face increased expenses for hostel accommodation due to the application of a 12 per cent Goods and Services Tax (GST) on the rent paid. This ruling was delivered in two distinct cases.

It means the hostel accommodation and paying guest accommodation will become expensive.

The Bengaluru bench of the AAR clarified that hostels should not be treated as equivalent to residential dwelling units, making them ineligible for exemption from the Goods and Services Tax (GST), which is applicable to some residential properties.

Srisai Luxurious Stay LLP sought an advance ruling, and in response, the AAR stated that the GST exemption would be applicable on accommodation services, charging up to Rs 1,000/- per day. This exemption applies to services provided by hotels, clubs, campsites, and similar establishments until July 17, 2022.

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

GST on reverse charge will be applicable on the rental to be paid to the landowners by the applicant as the services of the applicant are leviable to GST and thus the applicant has to obtain GST registration, it added.

"... 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 Bengaluru bench said.

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 Rs 1,000 per day.

"Hence, from July 18, 2022, onward services provided by an applicant will be (covered under GST for taxation)...," the Lucknow bench AAR said.

AMRG & Associates Senior Partner Rajat Mohan said 12 per cent tax on student accommodation in hostels and dormitories would lead to a higher cost for Indian families.

"The GST council may consider taking a policy decision to neutralise the tax cost built into the entire education ecosystem, including student's accommodation," Mr Mohan said.