The Tamil Nadu Authority for Advance Ruling (AAR) recently delivered a significant decision concerning the applicability of Goods and Services Tax (GST) on hostel accommodation, food supply, and leasing of premises between charitable or educational institutions. The AAR held that such services are not exempt merely because they are provided by or to charitable institutions. It ruled that when an educational or charitable trust provides hostel facilities, food, or leases its premises to another similar institution, such activities constitute taxable supplies under the GST law and attract 18% GST (9% CGST + 9% SGST).
This ruling clarifies the scope of exemptions available under Notification No. 12/2017-Central Tax (Rate) and underscores that the charitable status of an institution does not automatically extend tax exemptions to all services rendered by it.
Facts and Issues in the Tamil Nadu AAR
The case revolved around K.L.N. Sourashtra College of Engineering Council (an educational trust in Tamil Nadu), which runs a college and also provides hostel, mess, and transport services to its own students.
Since another college (also a charitable educational institution) lacked hostel accommodation for girl students, the applicant entered into an agreement with that college to accommodate its girl students in the applicant’s hostel. In this arrangement:
- The agreement was between the two colleges (i.e. institution to institution), not directly with the students;
- The students of the other college would stay in the hostel and avail food services;
- The applicant would raise an invoice in the name of the other college (not to individual students).
The advance ruling was sought on questions such as:
- Whether hostel accommodation for poor, middle, or “high class” students (run by charitable trusts) is exempt from GST.
- How to classify students by income class for GST purposes.
- Whether the arrangement of one college accommodating students of another (both charitable institutions) is taxable or exempt.
- The GST treatment of food supplied to hostel students of the other college.
- The applicable GST rate(s) if these services are taxable.
Ruling and Reasoning of the AAR
The AAR held as follows (in summary) that the services in question are taxable and attract 18 % GST (9 % CGST + 9 % SGST), with certain caveats.
Below is the breakdown of the analysis and rationale:
| Component | Analysis / Reasoning | Conclusion |
|---|---|---|
| Supply / “Consideration” | The AAR held that the arrangement constitutes a “supply” under Section 7 of the CGST Act, because there is a service rendered for consideration (even though via an institution). | Taxable supply (if not exempt) |
| Charitable exemption (Notification No. 12/2017-CT (Rate)) | The exemption for charitable activities is limited to certain kinds of services (public health, environment, relief, skill development, etc.). Hostel accommodation is not listed as a “charitable activity” under the Exemption Notification. Thus, just being a charitable institution does not automatically exempt these services. | Exemption cannot be claimed automatically |
| New Exemption (Notification No. 04/2024-CT (Rate)) | The AAR recognized that a new exemption (Sl. No. 12A) introduced in Notification 04/2024-CT(R) (effective from 15 July 2024) exempts accommodation services provided continuously for at least 90 days and where the consideration does not exceed ₹20,000 per person per month. However, this new exemption is subject to its conditions. | If the conditions of the new exemption are satisfied, the service may be exempt |
| Leasing / accommodation to another institution | In the particular fact pattern, the applicant was leasing its hostel premises to another educational institution (i.e. institution-to-institution). Hosting students of another college under a contract is a different model than providing hostel to one’s own students. The AAR held that this arrangement constitutes a taxable lease (service) under Heading 9972. | Taxable at 9 % + 9 % (i.e. 18 %) |
| Food / mess services (catering) | The applicant also supplied food to those students (of the other college). The exemption for catering under the Exemption Notification applies only to institutions up to higher secondary. Since the recipient is a higher education institution, the exemption is not available. Thus, food supply is a taxable service (classified under catering services) at 18 %. | Taxable at 18 % |
| Rate | The AAR did not admit hypothetical questions about classifying students by income class for differential rates, but the default taxable rate is 18 % (9 % CGST + 9 % SGST) for the services in question. | 18 % GST |
Thus, in this factual matrix, the AAR ruled that hostel, food, and leasing services (in its capacity of inter-institutional supply) do not enjoy exemption, and instead attract 18 % GST.
The Appellate Authority for Advance Ruling in Tamil Nadu has also upheld the AAR’s decision in the appeal.
Implications, Caveats & Counterpoints
- Exemption is not entirely foreclosed
- The new exemption under Notification 04/2024-CT (Rate), Sl. No. 12A provides a possibility of exemption if the stay is continuous for at least 90 days and the consideration is ≤ ₹20,000/month per person. However, that exemption is prospective and conditional.
- In other scenarios (e.g. a hostel provided by an educational institution to its own students), there has been jurisprudence supporting exemption (depending on facts).
- Distinction: direct to students vs. via other institution
Much of the AAR’s reasoning hinges on the fact that the supply is to another institution, not directly to students. Some earlier rulings or High Court judgments (e.g. Madras HC in Thai Mookambikaa Ladies Hostel) have held that when hostel rooms are leased directly to students (for residence), they qualify under the residential dwelling exemption. - Judicial developments may override or affect bindingness
The Tamil Nadu AAR’s ruling is binding only on the applicant (under section 101 of CGST Act) and is persuasive for others in Tamil Nadu. It is not binding precedential law on all cases. Also, courts could decide differently on appeal or writ petitions.
For example, the Madras High Court has held in Thai Mookambikaa that a hostel for female students/working women is exempt under the residential-dwelling entries of the Notification. - GST rate for ordinary hostels / PGs
Independently, outside of charitable institution context, the general rule for PG / hostel services is that if stay is < 90 days or rent > ₹20,000/month, GST is applicable (often at 12 %) unless the new exemption applies.
But in this AAR’s fact pattern, the typical “PG/hostel” regime does not apply, because the arrangement is institutional rather than B2C. - No differentiation by student “class”
The AAR rejected the classification by poor / middle / high class students as irrelevant for GST treatment. The economic background of students is not a determinative yardstick under GST.
Conclusion
- The Tamil Nadu AAR in the K.L.N. Sourashtra College case held that when a charitable educational institution leases its hostel premises to another educational institution for accommodating that institution’s students, and also supplies food, these services are taxable, and not exempt merely because both parties are charitable institutions.
- The applicable rate in that particular scenario is 18 % (9 % CGST + 9 % SGST).
- The newly introduced exemption (Notification 04/2024) may offer relief in limited cases (stay ≥ 90 days and value ≤ ₹20,000/month), but that is not automatic and must be satisfied concretely.
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One must carefully examine whether the supply is to students (direct) or via another institution, whether the conditions of the exemption are met, and whether judicial decisions in one’s jurisdiction might lead to a different outcome.