Supreme Court on GST on Hostel Rent: Renting Residential Building for Long-Stay Hostel Is Exempt Under Entry 13; Lessee Need Not Reside Itself [2025 INSC 1380]

The Supreme Court held that renting a residential building to a lessee company which sub-lets it as a hostel for long-term stay of students and working professionals is exempt from GST under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate) – "services by way of renting of residential dwelling for use as residence" – for the period before the 2022 amendment. A hostel meant for long-term stay is a "residential dwelling", and Entry 13 does not require the lessee itself to reside there; it is an activity-specific, not person-specific, exemption. The Revenue's attempt to apply the 18.07.2022 amendment retrospectively was rejected (paras 35–69).

Headnote

Goods and Services Tax — Exemption — Renting of residential dwelling for use as residence — Hostel for students and working professionals — Lease to aggregator who sub-leases — Interpretation of exemption notifications — IGST Act, 2017, Ss. 97, 100; Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017, Entry 13 (as amended w.e.f. 18.07.2022 and 01.01.2023).

Owner leased a 42-room residential building to a company which sub-leased it as a hostel for stays of 3 to 12 months; AAR and AAAR denied exemption under Entry 13, the High Court allowed it — Held, (i) any residential accommodation meant for long-term stay is a "residential dwelling", and the property – shown as residential in municipal records – qualifies; (ii) Entry 13 requires that the dwelling be rented for use as residence, not that the lessee itself reside there; the lessee is an aggregator and the occupants are sub-lessees; reading in such a condition would add words to the entry and defeat its purpose of keeping residential rent free of 18% GST; (iii) the exemption is activity-specific, not person-specific; (iv) the amendment of 18.07.2022 (no exemption where dwelling is rented to a registered person) cannot be applied retrospectively. For 2019–2022, the exemption applies. Revenue's appeals dismissed.

(Paras 35–39, 47–53, 55–56, 61–69)

Judgment Intelligence

Key Holdings

• "Residential dwelling" is not defined in GST law; any residential accommodation meant for long-term stay is a residential dwelling (paras 36, 46–47).
• A students' or working professionals' hostel used for long-term residence is residential use (paras 43–44, 47).
• Entry 13 does not require the lessee itself to use the dwelling as its residence; renting to an aggregator who sub-leases it for residence qualifies (paras 49, 51).
• A narrow reading would defeat the legislative intent that rented residential property used as residence should not suffer 18% GST (paras 52–53, 61–62).
• Entry 13 is an activity-specific exemption, not a person-specific one (para 63).
• The amendment of 18.07.2022 excluding renting to registered persons cannot be applied retrospectively to 2019–2022 (paras 65–66).

Brief Facts

The respondent, a co-owner of a 42-room, four-storey residential property in Bangalore, leased it on 21.06.2019 to M/s DTwelve Spaces Pvt. Ltd., which sub-leased it as a hostel providing long-term accommodation (3 to 12 months) to students and working professionals (para 4). On an application under Section 97 of the IGST Act, the AAR ruled on 23.03.2020 that Entry 13 did not apply as the lessee company itself was not using the premises as residence; the AAAR affirmed on 31.08.2020, describing the hostel as more akin to sociable accommodation (paras 6–7). The Karnataka High Court allowed the respondent's writ petition on 07.02.2022, relying on the CBIC Education Guide of 2012 and case law holding hostels to be residential (paras 8–13). The State appealed.

Issue (para 35)

1. Whether GST at 18% is payable on the rent paid by the lessee to the respondent, or whether the transaction is exempt under Entry 13 of the Exemption Notification?

Court's Findings

Residential dwelling: Drawing on the CBIC Education Guide (2012), V.L. Kashyap, Uratemp Ventures, Bandu Ravji Nikam and dictionary meanings, the Court held that residential accommodation for long-term stay is a residential dwelling; the property was also shown as residential in BBMP records (paras 36–47).

"For use as residence": The property was taken on rent only for use as residence. There is no further condition that the lessee must itself reside; the occupants are sub-lessees of the aggregator-lessee. All three conditions of Entry 13 were met for 2019–2022 (paras 48–51).

Interpretation of exemptions: Following Mother Superior Adoration Convent and Wood Papers, an exemption is construed strictly at the threshold, but once applicable it is given full play; applying purposive interpretation, the intent was to keep residential rent free of 18% GST (paras 54–62).

Activity-specific exemption and 2022 amendment: Entry 13 turns on the activity, not the person. From 18.07.2022 renting to a registered person is excluded, but the Revenue cannot apply that amendment retrospectively; the 01.01.2023 Explanation confirms the intent to exempt residential use (paras 63–68).

Final Outcome / Directions (paras 69–70)

• No interference with the Karnataka High Court's judgment; both appeals dismissed.

Legal Principle

For the period before 18.07.2022, renting a residential dwelling that is ultimately used as residence – including as a long-stay hostel through an aggregator-lessee – is exempt under Entry 13, because the exemption depends on the residential use of the dwelling, not on who the lessee is.

Precedents Relied Upon

• Government of Kerala v. Mother Superior Adoration Convent, (2021) 5 SCC 602 – Relied upon · Discussed at para 54: beneficial exemptions to be construed liberally once applicable.
• Union of India v. Wood Papers Ltd., (1990) 4 SCC 256 – Relied upon · Discussed at paras 55–56: strict construction at threshold, liberal thereafter.
• Collector of Central Excise v. Parle Exports (P) Ltd., (1989) 1 SCC 345 – Referred to · Discussed at para 57.
• Shailesh Dhairyavan v. Mohan Balkrishna Lulla, (2016) 3 SCC 619 – Relied upon · Discussed at para 60: purposive interpretation.
• Bandu Ravji Nikam v. Acharyaratna Deshbushan Shikshan Prasark Mandal, 2003 (3) Mah LJ 472 (Bombay High Court) – Relied upon · Discussed at paras 43–44: student hostel is residential use.
• V.L. Kashyap v. R.P. Puri, 12 (1976) DLT 369 (Delhi High Court) and Uratemp Ventures Ltd. v. Collins, (2001) 3 WLR 806 (House of Lords) – Referred to · Discussed at paras 41–42: meaning of "dwelling house".
• Commissioner of Customs v. Dilip Kumar & Co., (2018) 9 SCC 1 – Considered (as discussed in Mother Superior) · para 54.

Important Paragraphs of the Judgment

Para 47: "Thus, any residential accommodation meant for long term stay can be referred to as "residential dwelling"…"

Para 49: "In the present case, the third condition could also be said to be satisfied as the property was taken on rent only for use as a residence. There is no further condition that the tenant or lessee must itself use it as a residence. Indeed M/s DTwelve Spaces Private Limited (lessee) is an aggregator who facilitates the use of residential dwelling for hostel accommodation…"

Para 51: "…Entry 13 of the Exemption Notification does not mandate that the lessee must use the residential dwelling as its own residence. Giving any other interpretation would mean adding an additional condition to Entry 13."

Para 63: "In addition to above, it is pertinent to note that exemption envisaged under Entry 13 is an activity specific exemption and not person specific exemption…"

Para 66: "Thus, from 18.07.2022, there is no exemption available for respondent 1, as he has rented to a registered person. Through these appeals, the revenue is, in effect, trying to give retrospective application to the amendment made in 2022, which is impermissible."

What the Ruling Means: Practical Impact

• Pre-July 2022 hostel leases: Owners who leased residential buildings to co-living or hostel operators before 18.07.2022 can claim the Entry 13 exemption where the premises were used for long-term residence.
• Position from 18.07.2022: The amended Entry 13 excludes renting to a registered person (para 65–66), subject to the Explanation added from 01.01.2023 (para 67). Readers should verify the current notifications for the applicable tax treatment.
• Documentation: Municipal records showing residential use, lease clauses on the purpose of residence and the length of stays were relevant to the outcome.

Frequently Asked Questions

Is renting a building for a students’ hostel exempt from GST?

For the period before 18.07.2022, yes – the Supreme Court held that a hostel for long-term stay is a residential dwelling and renting it for residential use is exempt under Entry 13 (paras 47–51).

Must the lessee itself live in the premises for the Entry 13 exemption?

No. Entry 13 does not require the lessee to use the dwelling as its own residence; sub-leasing for residence qualifies (paras 49, 51).

Does the 2022 amendment apply to earlier periods?

No. The Court held that applying the 18.07.2022 amendment retrospectively is impermissible (para 66).

Is Entry 13 a person-specific exemption?

No. It is an activity-specific exemption depending on use of the dwelling as residence (para 63).

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Download Judgment: 2025 INSC 1380 – State of Karnataka v. Taghar Vasudeva Ambrish (official copy on sci.gov.in – search Civil Appeal No. 7846 of 2023)

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