NEW DELHI: The Supreme Court ruled on Thursday that leasing residential premises to entities utilizing them as hostels for students and working professionals is exempt from GST.
Justices JB Pardiwala and KV Viswanathan upheld the Karnataka High Court’s decision, affirming that such leasing practices are indeed exempt under GST.
“In this instance, the primary purpose of the property as a residence is unchanged. Imposing an 18% GST on the transaction between the respondent No. 1 and the lessee, M/s DTwelve Spaces Private Limited, would eventually burden students and working professionals, undermining the legislative intent of providing exemptions for residential use,” the bench noted.
The Supreme Court reviewed a plea from a co-owner of a residential property with 42 rooms in Bengaluru. The co-owner and others had leased the property to M/s D Twelve Spaces Private Limited.
The lessee rented the residential property as a hostel for long-term accommodations to students and working professionals, with stays ranging from three to twelve months.
Seeking confirmation on the eligibility for exemption concerning the rental services, the petitioner submitted an application to the Karnataka Authority of Advance Ruling.
The AAR, Karnataka, determined that renting a residential dwelling for residential use does not fall under entry 13, thereby denying the exemption as per the notification.
The petitioner appealed to the Appellate Authority for Advance Ruling, which concluded that because the property was rented as a hostel, it could not be classified as a residential dwelling and thus denied the exemption.
The Karnataka High Court subsequently found that leasing residential premises to an entity operating as a ‘hostel’ for students and working professionals is indeed exempt from GST.
