Higher Costs Ahead: Hostel Accommodation To Incur 12% GST

Hostel accommodation costs for students will increase as a 12 per cent GST will be applied to the rent paid in two separate cases, according to the Authority of Advance Ruling. 

The AAR's Bengaluru bench clarified that hostels are not considered residential dwelling units and therefore do not qualify for exemption from Goods and Services Tax (GST).

The GST law exempts GST on residential dwellings rented for residence. However, the AAR held that residential dwellings do not include guesthouses, lodges, or similar places. The Karnataka AAR stated that accommodation provided in hostels, with shared rooms and no individual kitchen facility, does not qualify as residential dwellings. Additional services like washing machines and TV will be separately taxable. As a result, students staying in hostels may face increased costs with 12 per cent GST on room rent and 18 per cent on other services.

Ranjeet Mahtani, Partner, Dhruva Advisors, said, "A hostel qualifies as a residential dwelling, as has been settled by certain high court decisions. The advance rulings have adopted an unreasonable and obtuse view, to deny the residential dwelling status to hostels and so, the exemption. This view, expressed by the UP and Karnataka benches of the AAR is obtuse and can be challenged.

He added, "As for bundling of other supplies (washing machine, TV set, etcetera) these help establish the residential nature of the building and ideally, deserve to be bundled with the principal supply (of residential dwelling) and not be taxed.”