Hostel & PG Accommodation Services Attract 12% GST: AAR [Read Order]

The Karnataka Authority for Advance Ruling (AAR), Bengaluru has held that hostel and paying guest (PG) accommodation services are subject to Goods and Services Tax (GST) at the rate of 12%. The ruling was issued in response to an application filed by M/S. Srisai Luxurious Stay LLP seeking clarity on the tax implications of its services.

M/S. Srisai Luxurious Stay LLP, a Limited Liability Partnership (LLP) firm based in Bengaluru, provides accommodation services such as hostels and paying guest facilities to customers.

The applicant also offers additional allied services like meals, furnished rooms, security, housekeeping, washing machine facilities, television in each room, internet access and vehicle parking.

The central issue before the AAR was whether the accommodation services provided by the applicant qualified for GST exemption under Entry No. 12 of Notification No. 9/2017 dated 28^th September 2017. Entry No. 12 exempted services by way of renting residential dwellings for use as residences from GST.

The AAR noted that the term “residential dwelling” was not explicitly defined under the GST Act or the notification. However, based on the normal trade parlance, the authority interpreted “residential dwelling” as a residential accommodation meant for permanent stay and not including guest houses or lodges.

The authority found that the services offered by the applicant such as PG and hostel accommodations were akin to guest house and lodging services, which did not qualify as “residential dwellings” under the notification. Therefore, the exemption under Entry No. 12 did not apply to its services, the authority noted.

The applicant, represented by Sri B H Ramanatha Pai also sought a ruling on whether the allied additional services provided by them, such as meals and other facilities were naturally bundled with the main service of providing hostel and PG accommodations.

The authority ruled that these additional services were optional and not integral to the main accommodation service. As they could be availed separately from the main service, they did not qualify as naturally bundled services.

Moreover, the AAR clarified that the applicant, being liable to pay GST on its services, would be required to obtain GST registration and discharge the tax liability.

The ruling further established that the applicant would be subject to Reverse Charge Mechanism (RCM) under Notification No. 13/2017-Central Tax (Rate), as amended by Notification No. 05/2022, which mandates the tenant to pay GST on rent for residential properties.

In conclusion, the authority comprising Dr. M P Ravi Prasad (SGST Member) and Sri. Kiran Reddy T (CGST Member) held that Hostel & PG Accommodation services are now liable to a GST rate of 12%.

To Read the full text of the Order CLICK HERE

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