53rd GST Council meeting: Co-living firms welcome proposal to exempt GST on accommodation services

Providing relief to students and working professionals, the GST Council has recommended exempting accommodation services having a value of supply up to ₹20,000 per person per month from goods and services tax.

Co-living space providers have welcomed the new notification saying that it clarifies that hostels and accommodations for working professionals are exempt from GST within certain limits.

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Since these services are meant for students or working class and exemption can be availed only if the stay is up to 90 days, the GST Council said.

“To create a separate entry in notification No. 12/2017- CTR 28.06.2017 under heading 9963 to exempt accommodation services having value of supply of accommodation up to Rs. 20,000/- per month per person subject to the condition that the accommodation service is supplied for a minimum continuous period of 90 days. To extend similar benefits for past cases,” the government said in a statement.

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The 53rd GST council meeting was held in New Delhi.

Here's what the GST Council's proposal for hostels means

The GST council's recommendation to exempt GST on accommodation services charging up to Rs. 20,000 per month per person is a welcome move. This will benefit a large number of co-living companies, especially those in the student housing segment, where monthly charges typically fall below this threshold across the country, said Sunny Garg, co-founder, CRIB, a Bengaluru-based proptech start-up.

Additionally, the eligibility condition requiring that the accommodation service be supplied for a minimum continuous period of 90 days can be easily met in the case of student co-living arrangements and hostels, which usually have longer lease or stay duration, he said.

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In recent years, the GST on residential dwellings had been a grey area. This new notification clarifies that hostels and accommodations for working professionals are exempt from GST within certain limits, said Bharath Bhaskar, co-founder Settl, a co-living operator.

Provides clarity to co-living operators

“This provides much-needed clarity for operators. However, in the long term, these should be classified as residential dwellings, thereby exempting them from GST without any limits. This change would reduce the burden on end customers, allowing them to save money on rentals,” he said.

There is still ambiguity regarding the GST paid to landlords on a reverse charge mechanism (RCM) for supplies taken by operators, which is unsustainable given the margins the operators make. Moving these rentals to an inclusive GST model would help operators survive and the market should change in this direction, he said.

Tax experts point out that currently the services by way of renting for use as residential dwelling to an unregistered person for use as residence is exempt under GST. A residential dwelling generally does not include a hostel.

“However, in present days hostels can be equated with more than a residential dwelling as they have all the ingredients. Hence, the question was that incase residential dwelling services are exempted, why should hostel not be exempt, given the social considerations and India’s demographic landscape where youth needs to stay in hostels as a necessity,” explained Vivek Jalan - Partner Tax Connect Advisory Services LLP - a multidisciplinary PAN India Consulting Firm.

With the decision of the 53rd GST Council, all kinds of hostel services used for continuous stay of more than 90 days, including private hostels would be exempt incase they charge not more than ₹20,000 per month.

Hence, it seems that incase the charges are more, then GST would be charged on the entire value and no exemption would be available on the value up to ₹20,000 per month. For example incase the charges are ₹25,000 per month, then GST would be charged on the entire ₹25,000 per month and not on Rs5,000 per month. However, further clarification would be received on issuance of notification, he said.

It should be noted that in July 2023, the Authority for Advance Ruling bench in Bengaluru had held that paying guest (PG) accommodations and hostels attract 12% GST as they are not options for permanent residence/residential dwelling units. The authority's ruling had put the PG/hostel industry at par with the hospitality sector.

The Bengaluru bench had also stated that other services like TV, or washing machine will not be bundled services and hence GST will be charged separately on them. In a similar case by Noida-based VS Institute and Hostel, the Lucknow AAR bench had said GST will be applicable on hostel rooms costing less than ₹1,000 per day.