Supreme Court Affirms GST Exemption on Leasing of Residential Premises Used as Hostels

In a significant ruling impacting the rental accommodation and co-living sector, the Supreme Court of India has upheld a Karnataka High Court judgment granting Goods and Services Tax (GST) exemption on the leasing of residential dwellings used as hostels for students and working professionals. The bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan dismissed two appeals filed by the State of Karnataka and affirmed that such rental activity qualifies for exemption under Entry 13 of Notification No. 9/2017–Integrated Tax (Rate) dated June 28, 2017. The dispute emerged after a co-owner of a residential property in Bengaluru entered into a lease agreement with M/s DTwelve Spaces Pvt. Ltd., which operated the premises as a long-term hostel accommodation for students and working professionals. The property comprised 42 rooms and was registered as residential in municipal records. The lessor sought an Advance Ruling on whether rent received from the company was exempt from IGST under Entry 13 of the 2017 exemption notification, which covers “services by way of renting of residential dwelling for use as residence.” Both the Authority for Advance Ruling (AAR) and the Appellate Authority (AAAR) denied the exemption, holding that a company taking the property on lease for commercial use could not claim the benefit. The Karnataka High Court later overturned these findings, prompting the State to appeal before the Supreme Court. The department strongly argued that the exemption should not apply because the lessee, a commercial entity, did not use the property itself as a residence. The exemption must be evaluated solely on the “first transaction” between lessor and lessee, without considering how the end-users (students/working professionals) use the property. The building, consisting of 42 independent rooms with attached washrooms, was more akin to a hostel or lodge rather than a “residential dwelling.” A strict interpretation of exemption notifications must be followed, and residential dwelling must be used by the lessee for exemption to apply. The respondent argued that the notification does not require the lessee to use the premises as residence; it requires the property to be used as residence. Students and working professionals stayed in the property for extended durations (3–11 months), evidencing long-term residential use. A narrow interpretation would defeat the legislative intent behind the exemption and burden students with additional costs.The court upheld the Karnataka High Court ruling, making several critical observations. The Court relied on dictionary meanings, prior judicial precedents, municipal records, and the Service Tax-era Education Guide to conclude that hostels used for long-term residence fall within the definition of “residential dwelling.” The Court rejected the argument that the corporate lessee must itself reside in the dwelling. Entry 13 contains no such condition, and imposing one would amount to rewriting the notification. The Bench emphasized that the exemption is activity-specific, not person-specific. As long as the property is eventually used as a residence — even by sub-lessees — the exemption applies. Charging 18% GST on such leases would burden students and working professionals, contrary to the purpose behind residential rental exemptions. The Court noted that amendments introduced on July 18, 2022 — which removed exemption where a residential dwelling is rented to a registered person — cannot apply to past periods. Dismissing the appeals filed by the Revenue, the Supreme Court has clarified that long-term hostel and PG accommodations are eligible for GST exemption when rented as residential dwellings. The ruling reinforces purposive interpretation of tax exemptions and prevents unintended tax burdens on students and working professionals. Case Details Case Title: The State Of Karnataka & Anr. Versus Taghar Vasudeva Ambrish & Anr. Case No.: CIVIL APPEAL NO. 7846 OF 2023 Date: 04/12/2025 Click Here To Read Order Read More: Handling of Cargo in Customs Areas Regulations, 2009 are ultra vires Customs Act, 1962; Can’t Be Used To Levy Cost Recovery Charges: CESTAT

Supreme Court Affirms GST Exemption on Leasing of Residential Premises Used as Hostels

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