Students seeking hostel accommodation will face an increase in expenses, as a recent ruling from the Authority of Advance Ruling imposes a 12% GST on rent payments. This decision, rendered in separate instances by the Bengaluru and Lucknow benches of the AAR, asserts that hostels should not be treated as equivalent to residential dwellings and, consequently, are ineligible for Goods and Services Tax exemption.
Srisai Luxurious Stay LLP, in their quest for a clarification on GST, was informed that the exemption applied only to accommodation services costing up to Rs 1,000 per day, a provision applicable until July 17, 2022.
The Bengaluru bench of the AAR clarified, “PG/Hostel Rent paid by inhabitants do not qualify for GST exemption… as the services provided by the applicant are not akin to renting of residential dwelling for use as residence.”
Furthermore, the decision indicated that GST under reverse charge would be applicable to the rental payments made to landowners by the applicant, requiring the applicant to secure GST registration.
Explaining the distinction, the bench stated, “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.”
A parallel scenario involving Noida-based V S Institute & Hostel Pvt Ltd clarified that hostel accommodations below Rs 1,000 per day would also be subject to GST, beginning on July 18, 2022.
Rajat Mohan, Senior Partner at AMRG & Associates, shared concerns about the implications of the 12% tax on student accommodations in hostels and dormitories, projecting an increased financial burden on Indian families. Mohan proposed that the GST council should contemplate strategies to mitigate the tax impact on the entire educational ecosystem, including student accommodation. This would help alleviate the additional costs faced by students and families in pursuit of education.