Hostel Rent Relief: Leasing Residential Premises to Students and Working Professionals Exempt from GST, Supreme Court Rules

The Supreme Court has ruled that leasing of residential premises for use as hostels by students and working professionals is exempt from Goods and Services Tax, provided the premises are used for residential purposes. The Court upheld the Karnataka High Court’s judgment which had set aside a contrary ruling of the Appellate Authority for Advance Ruling, Karnataka.

The judgment provides clarity for homeowners, lessors, students, working professionals and operators of long-term hostel accommodations by affirming that GST exemption under Entry 13 of the 2017 exemption notification applies to the activity of renting for residential use, and not to the category of person renting the premises.

The Supreme Court dismissed an appeal filed by the State of Karnataka challenging the High Court’s 2022 decision in favour of the property owners.

Background of the case

The case arose from a dispute over the applicability of GST on rent received from leasing a residential building used as a hostel. The first respondent, Taghar Vasudeva Ambarish, was a co-owner of a residential property in Bengaluru consisting of 42 rooms across four floors with common areas and terrace space. Municipal records and layout plans classified the property as residential.

In 2019, the co-owners leased the property to M/s DTwelve Spaces Private Limited. The lessee operated the premises as a hostel, offering long-term accommodation to students and working professionals, with stay periods ranging from three months to twelve months.

To seek clarity on GST liability, the respondent approached the Authority for Advance Ruling under Section 97 of the Integrated Goods and Services Tax Act, 2017. The Authority ruled that leasing the premises as a hostel did not qualify for exemption under Entry 13 of the relevant GST notification. This view was affirmed by the Appellate Authority for Advance Ruling in 2020.

The Karnataka High Court set aside these rulings in 2022, holding that the leasing of residential premises for hostel accommodation remained eligible for GST exemption. The State of Karnataka challenged this decision before the Supreme Court.

What the Supreme Court examined

The Supreme Court examined whether GST at the rate of 18 percent was payable on rent received by the property owner when a residential building was leased to an operator who in turn provided long-term hostel accommodation.

The Court analysed Entry 13 of the exemption notification issued in 2017, which exempts services by way of renting of residential dwelling for use as residence. The key question was whether this exemption applies only when the tenant uses the premises personally as a residence, or whether it extends to cases where the premises are leased and then sub-leased for residential use.

Residential use is the decisive factor

The Court held that any residential accommodation meant for long-term stay qualifies as a residential dwelling. On the facts of the case, the Supreme Court found no difficulty in concluding that the subject property was a residential dwelling.

It noted that M/s DTwelve Spaces Private Limited functioned as an aggregator facilitating the use of residential premises for hostel accommodation. The lessee was the tenant, while the students and working professionals occupying the premises were effectively sub-lessees. In law, a lease between the owner and tenant becomes a sub-lease when the tenant permits another to occupy the premises.

The Court held that the condition of residential use was satisfied since the ultimate use of the property remained residential, irrespective of the intermediary arrangement.

Activity-based exemption, not person-based

The Supreme Court emphasised that the exemption under Entry 13 is activity specific and not person specific. It clarified that GST law contains both person-based exemptions and activity-based exemptions. Entry 13 falls in the latter category, where the nature of the activity determines eligibility for exemption.

Giving Entry 13 a narrow interpretation that limits exemption only to cases where the tenant personally resides in the property would defeat legislative intent. Such an interpretation would deny exemption in situations where a property is sub-leased for residential use, even though the end use remains unchanged.

The Court observed that imposing GST in such cases would ultimately burden students and working professionals, undermining the objective of exempting residential rentals from indirect tax.

No retrospective application of later amendments

The Supreme Court also examined subsequent amendments to Entry 13. It noted that with effect from July 18, 2022, the exemption was restricted where residential dwellings were rented to registered persons. The Court held that the State could not apply this amendment retrospectively to deny exemption for earlier periods.

Further, an explanation added from January 1, 2023 clarified that even where rent is paid by a registered person, exemption would still apply if the premises are used for personal residence. This, the Court noted, reinforced the original intent to exempt residential rentals from GST.

Final ruling

Dismissing the State’s appeal, the Supreme Court upheld the Karnataka High Court’s judgment and confirmed that leasing of residential premises as hostels for students and working professionals is exempt from GST for the relevant period, as long as the use remains residential.

The ruling offers certainty to property owners and tenants across India and ensures that long-term hostel accommodation does not attract additional tax burden when the underlying use is residential.

Case Title: State of Karnataka and Another v Taghar Vasudeva Ambarish and Another

Bench: Justice J.B. Pardiwala and Justice K.V. Vishwanathan

Date of Judgment: December 4, 2025