Leasing of residential premises as hostels for long-term stay qualifies as renting of residential dwelling for use as residence under GST exemption

The Supreme Court of India has held that leasing of residential premises to an entity for operating hostels providing long-term accommodation to students and working professionals falls within the scope of “services by way of renting of residential dwelling for use as residence” under Entry 13 of Notification No. 9/2017–Integrated Tax (Rate). The Court affirmed that such leasing transactions are entitled to exemption from goods and services tax for the period prior to the 2022 amendment.

Upholding the judgment of the Karnataka High Court, the Supreme Court clarified that the exemption does not require the lessee itself to use the premises as a residence, so long as the residential dwelling is ultimately used for residential purposes. The ruling settles a significant interpretive dispute concerning GST liability on hostel and similar residential accommodation models.

Case Background

The dispute concerned a residential property located in Bengaluru comprising 42 rooms in a multi-storeyed building. The respondent, a co-owner of the property, leased it to a company engaged in operating hostels and long-term accommodation facilities for students and working professionals, with individual stays ranging from three to twelve months.

Seeking clarity on tax liability, the respondent applied for an advance ruling on whether the rental income earned from leasing the property qualified for exemption from GST under Entry 13 of Notification No. 9/2017, which exempts services by way of renting of residential dwelling for use as residence.

What The Lower Authorities Held

The Authority for Advance Ruling held that the exemption was not available, reasoning that the lessee was a commercial entity and was not itself using the premises as a residence. It concluded that GST was payable on the rental income.

On appeal, the Appellate Authority for Advance Ruling affirmed this view, characterising the premises as hostel accommodation akin to sociable accommodation rather than residential dwelling, and holding that the exemption required use of the premises as residence by the lessee.

The Karnataka High Court reversed these findings, holding that the language of Entry 13 was clear and unambiguous, and that leasing of residential premises for use as hostels providing residential accommodation fell within the scope of the exemption.

The Court’s Reasoning

The Supreme Court examined whether the leasing of residential premises as hostels satisfied the three conditions embedded in Entry 13 of Notification No. 9/2017, namely: supply of renting services, renting of a residential dwelling, and use of such dwelling as residence.

Meaning of residential dwelling

The Court noted that the term “residential dwelling” is not defined under GST law. Relying on interpretive guidance from the erstwhile service tax regime and judicial precedents, the Court held that residential dwelling refers to residential accommodation distinct from hotels, inns, or guest houses meant for temporary stay.

Considering the physical characteristics of the property, municipal records, and its intended long-term residential use, the Court had no hesitation in holding that the premises constituted a residential dwelling.

Use as residence

The Court rejected the revenue’s argument that the exemption requires the lessee itself to use the premises as a residence. It held that Entry 13 does not prescribe such a condition and that importing it would amount to rewriting the notification.

The Court observed that the property was leased specifically to provide long-term residential accommodation to students and working professionals, and that the ultimate use of the premises as residence remained unchanged despite sub-leasing.

Statutory Interpretation

The Supreme Court undertook a textual and purposive interpretation of Entry 13 of Notification No. 9/2017. It held that the exemption applies where three conditions are satisfied: the service must be renting, the property must be a residential dwelling, and the dwelling must be used as residence.

The Court clarified that the exemption is activity-specific rather than person-specific. It does not hinge on the identity of the service recipient but on the nature of the activity and the use of the premises. Once the conditions are satisfied, the exemption must be given full effect.

The Court further held that subsequent amendments to Entry 13 introduced in 2022, which excluded leasing to registered persons from exemption, could not be applied retrospectively to deny exemption for the earlier period.

Constitutional / Policy Context

While interpreting the scope of the exemption under Entry 13 of Notification No. 9/2017, the Supreme Court placed emphasis on settled principles governing taxation statutes and exemption notifications. The Court reiterated that exemption notifications must be interpreted strictly with reference to their language, but once the conditions prescribed therein are satisfied, the benefit of exemption cannot be denied by introducing additional requirements.

The Court noted that goods and services tax is a destination-based consumption tax and that exemptions form an integral part of the legislative and executive policy to exclude certain categories of supplies from taxation. Courts, therefore, must give effect to the plain meaning of exemption entries rather than curtail their scope through restrictive interpretation.

The judgment reflects the Court’s consistent approach that tax administration must operate within the confines of statutory text and delegated legislation, and that perceived revenue implications cannot justify reading limitations into exemption provisions that are not expressly stated.

Nature of Hostel Accommodation

A central aspect of the Court’s reasoning concerned the character of hostel accommodation provided under the lease arrangement. The Court distinguished between accommodation intended for temporary stay, such as hotels, inns, or guest houses, and accommodation meant for long-term residential use.

The Court observed that the hostel in question catered to students and working professionals who stayed for extended durations ranging from several months to a year. Such occupancy, the Court held, bore the essential attributes of residential use rather than transient lodging.

The judgment clarifies that the manner in which rooms are allotted, the duration of stay, and the purpose for which occupants reside in the premises are relevant considerations in determining whether a dwelling is used as residence.

Rejection of Revenue’s Person-Centric Interpretation

The Supreme Court decisively rejected the revenue’s contention that the exemption under Entry 13 applies only when the lessee itself uses the premises as a residence. The Court held that such an interpretation finds no support in the language of the notification.

The Court explained that the exemption focuses on the nature of the service and the use of the property, not on the identity or legal character of the service recipient. Introducing a requirement that the lessee must personally reside in the premises would amount to judicial legislation.

The judgment thus affirms that leasing arrangements involving sub-letting or onward use do not automatically disqualify a transaction from exemption, provided the ultimate use remains residential.

Effect of the 2022 Amendment

The Supreme Court examined the amendment introduced in 2022 to Entry 13, which restricted the scope of exemption by excluding leasing of residential dwellings to registered persons. The Court held that this amendment represented a conscious change in policy and could operate only prospectively.

The Court emphasised that the existence of a subsequent amendment restricting an exemption reinforces the position that, prior to the amendment, the exemption was broader in scope. Applying the amended provision retrospectively would be contrary to settled principles of tax law.

Accordingly, the Court held that the exemption was fully available for the period prior to the 2022 amendment.

Why This Judgment Matters

This judgment provides authoritative clarity on the GST treatment of leasing residential premises for use as hostels and similar long-term accommodation facilities. It resolves uncertainty faced by property owners and operators in the education and co-living sectors.

The decision reinforces the principle that tax exemptions must be applied as written and that administrative authorities cannot deny exemptions by importing conditions not found in the statutory text.

For taxpayers, the judgment underscores the importance of examining the substance of use rather than the form of contractual arrangements when determining tax liability.

Final Outcome

The Supreme Court dismissed the appeals filed by the State of Karnataka and upheld the judgment of the Karnataka High Court.

It held that leasing of residential premises for use as hostels providing long-term residential accommodation was entitled to exemption from GST under Entry 13 of Notification No. 9/2017 for the period prior to the 2022 amendment.

Case Details

• Case Title: State of Karnataka & Anr. v. Taghar Vasudeva Ambrish & Anr.
• Citation: 2025 INSC 1505
• Court & Bench: Supreme Court of India; J.B. PARDIWALA J. and (K.V. VISWANATHAN J.
• Date of Judgment: 4 December 2025