The Supreme Court has ruled that renting a residential property to a company that uses it as a hostel for students and working professionals is exempt from GST. The Court said this ensures the “legislative intent behind residential exemption” is not defeated.
New Delhi: The Supreme Court of India has ruled that when a residential property is leased to an organisation and that organisation uses it as a hostel for students or working professionals, the transaction will not attract GST.
This judgment, delivered in New Delhi on December 4, is expected to give major relief to landlords, student housing operators, and thousands of young tenants across the country.
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A bench of Justices JB Pardiwala and KV Viswanathan upheld the Karnataka High Court’s view that such renting continues to fall under the exempt category because the property is still being used for residential purposes.
The Court said that
“the leasing out of residential premises to an entity which is using it as hostel to students and working professionals is exempt under GST.”
Explaining the reasoning behind the verdict, the bench stated that
“In the case on hand, the ultimate use of the property as residence remains unchanged. However, if 18 per cent GST is levied on this transaction between the respondent No. 1 and the lessee i.e. M/s DTwelve Spaces Private Limited, the same would ultimately be passed on to the students and working professionals which would lead to a situation where the legislative intent behind granting exemption for residential use is defeated.”
The Supreme Court was hearing an appeal filed by a co-owner of a residential building in Bengaluru that has 42 rooms.
The owners had leased the entire premises to M/s D Twelve Spaces Private Limited, which further rented out the rooms as long-term hostel accommodation with stays ranging between three months and twelve months.
To avoid confusion about GST liability, the petitioner approached the Authority for Advance Ruling (AAR), Karnataka, seeking clarity on whether GST exemption would apply.
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However, the AAR ruled that renting a residential dwelling for the purpose of residence did not fall under Entry 13 of the relevant GST notification and denied the exemption.
The petitioner then appealed before the Appellate Authority for Advance Ruling (AAAR), but the AAAR also rejected the exemption, stating that the building functioned as a hostel and therefore could not be considered a “residential accommodation or residential dwelling.”
The matter reached the Karnataka High Court, which disagreed with both authorities and held that leasing a residential property that is ultimately used as a hostel for students and professionals is still a residential use and therefore exempt from GST. The Supreme Court has now confirmed this interpretation.
This ruling brings much-needed clarity for landlords renting out residential properties to companies operating hostels, PGs, and co-living spaces.
The Court’s decision ensures that students and working professionals will not bear the burden of increased accommodation costs due to GST being wrongly applied.
Read Order:
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