29 July 2023, Mumbai: In two separate cases, the Authority of Advance Ruling (AAR) stated that students would face increased expenses for hostel accommodation as a 12 percent Goods and Services Tax (GST) would be applicable on the rent paid. The Bengaluru bench of AAR clarified that hostels are not considered residential dwelling units and, therefore, are not exempt from GST.
AAR’s Rulings on GST for Student Hostels and PG Accommodation
A ruling was sought by Srisai Luxurious Stay LLP, where the AAR explained that GST exemption applied to accommodation services, charging up to Rs 1,000/- per day, provided by hotels, clubs, and campsites until July 17, 2022. However, PG/hostel rent paid by inhabitants did not qualify for GST exemption as these services were not similar to renting residential dwellings for use as residences, as per the Bengaluru bench.
Impact of 12 Percent GST on Hostel Rent: A Student Expense Hike
The AAR further specified that GST on reverse charge would be applicable on the rental paid to landowners by the applicant, as the services provided were subject to GST. As a result, the applicant was required to obtain GST registration.
A Closer Look at AAR’s Bengaluru and Lucknow Bench Decisions on Hostel GST
The Lucknow bench of AAR made a similar reference in the case of Noida-based V S Institute & Hostel Pvt Ltd, stating that GST would be applicable on hostel accommodation costing less than Rs 1,000 per day starting from July 18, 2022.
According to the AAR, a residential dwelling is meant for permanent stay and does not include guest houses, lodges, or similar places. The applicant, by providing PG/hostel services, which are akin to guest house and lodging services, cannot be categorized as a residential dwelling.
GST Council’s Potential Policy Decision: Neutralizing Tax Costs in the Education Sector
The implementation of a 12 percent tax on student accommodation in hostels and dormitories, as pointed out by AMRG & Associates Senior Partner Rajat Mohan, would result in higher costs for Indian families. Mohan suggested that the GST council should consider taking a policy decision to neutralize the tax cost throughout the education ecosystem, including student accommodation.