The Authority for Advance Rulings (AAR) in Karnataka has issued an order stating that a 12 percent Goods and Services Tax (GST) will now be applied to rent paid for hostel accommodations and by paying guests. There was confusion about whether such accommodations were exempt from GST. In separate rulings by the Uttar Pradesh and Karnataka AARs, these accommodations have been categorized as ‘non-residential,’ making them liable for a 12 percent GST, similar to small hotels and inns.
Karnataka AAR Ruling: Students in PGs and Hostels to Face GST on Rent, Impact on Education Costs
The AAR in Karnataka ruled that rent paid by inhabitants for PGs and hostels does not qualify for GST exemption under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. This is because the services provided by these accommodations are not considered similar to renting a residential dwelling for use as a residence.
Tax experts predict that these rulings will be considered permanent precedents by the GST council, as they address a previous loophole in the GST law, where many PGs and hostels were not subject to any GST or charged varying rates. The direct impact of this ruling will be felt by students staying in these accommodations, as the cost of education for out-station students might increase due to higher living costs.
Tax Experts Contest Karnataka AAR Rulings, Advocate Exemptions for Hostels and Bundled Supplies
However, some tax experts believe that the rulings are unjustified and can be challenged. They argue that hostels should be considered residential dwellings based on certain high court decisions, and thus, they should be exempt from GST. Additionally, some experts argue that other supplies bundled with the residential dwelling, such as washing machines or TV sets, should also be exempt from taxation.
