The Supreme Court has delivered a significant ruling clarifying the scope of GST exemption on renting of residential premises, bringing much-needed certainty to homeowners, hostel operators, students, and working professionals. Upholding the Karnataka High Court’s decision, the Court held that leasing of residential premises for use as hostels for long-term stay remains exempt from GST, provided the premises are used for residential purposes. The judgment reiterates that the applicability of GST exemption hinges on the use of the property as a residence, rather than the identity or category of the occupants, thereby settling a long-standing controversy arising from conflicting advance rulings.
Date of Judgment
15 December 2025
Issue Involved
Whether leasing of residential premises to students and working professionals for use as hostels is liable to GST or exempt under Entry 13 of Notification No. 12/2017–Central Tax (Rate).
Relevant Legal Provision
- Entry 13 of Notification No. 12/2017–CT (Rate)
Exempts services by way of renting of residential dwelling for use as residence.
Background
- The Appellate Authority for Advance Ruling (AAAR), Karnataka had held that renting of residential premises used as hostels was taxable, treating hostel accommodation as a commercial activity.
- The Karnataka High Court set aside the AAAR ruling and held the activity to be exempt from GST.
- The matter reached the Supreme Court by way of appeal.
Supreme Court’s Ruling
The Supreme Court upheld the Karnataka High Court judgment and ruled that:
- Leasing of residential premises used as hostels for long-term stay by students or working professionals continues to be exempt from GST.
- The determinative factor is the use of the premises, i.e., residential use, and not the status or category of the occupant.
- Entry 13 of the exemption notification applies to the activity of renting residential dwellings for residence, irrespective of whether the occupants are students, employees, or professionals.
Key Observations
- Hostel accommodation involving long-term residential stay does not lose its character as a residential dwelling merely because multiple occupants reside therein.
- GST exemption cannot be denied solely on the ground that the premises are operated or described as “hostels”.
- The intention and actual use of the premises for residence is decisive.
Impact of the Judgment
- Provides long-awaited clarity for:
- Homeowners and lessors
- Hostel operators
- Students and working professionals
- Confirms that long-term hostel accommodations in residential premises are outside the GST net, so long as the use remains residential.
- Prevents arbitrary taxation based on nomenclature or user profile.
Conclusion
Leasing of residential premises for use as hostels by students or working professionals is exempt from GST, provided the premises are used for residential purposes, reaffirming the principle that use overrides user under GST law.