By CA Surekha S Ahuja
Critical Analysis, Taxability Differentiators & Judicial Logic
(Judgment dated 04.12.2025 — State of Karnataka & Anr. vs. Taghar Vasudeva Ambrish)
The Supreme Court’s 2025 ruling is now the definitive authority on whether leasing residential premises to aggregators, student housing operators, or co-living companies is exempt from GST.
Short answer: Yes, it is exempt—provided the ultimate use is residential.
This judgment transforms tax certainty for the hostel/PG, co-living, student housing, and corporate rental ecosystem.
Facts of the Case—Simplified for Practical Understanding
| Aspect | Details |
|---|---|
| Nature of property | Residential building with 42 rooms |
| Lessor | Individual owners (co-owners) |
| Lessee | DTwelve Spaces Pvt. Ltd., an aggregator providing long-stay accommodation |
| End use | Rooms sub-let as hostel/PG for 3–12 months to students & working professionals |
| Claim made | Exemption under Entry 13 of Notif. 9/2017-IT(R) — renting of residential dwelling for use as residence |
| AAR/AAAR | Denied exemption — said lessee (a company) was not residing |
| High Court | Allowed exemption |
| Supreme Court | Confirmed exemption in favour of assessee |
Gist of the Supreme Court Ruling
Residential premises rented to an intermediary (company/aggregator/firm) for providing long-stay residential use remain exempt from GST.
The identity or legal form of the lessee is irrelevant.
What matters is the nature of the property and the ultimate use.
Professional Basis of Taxability vs. Exemption
GST exemption under Entry 13 applies only when both conditions are satisfied:
Residential Character of the Property
A “residential dwelling” is not defined in GST law.
Thus, courts rely on:
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Common parlance
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Service Tax Education Guide
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Judicial precedents
Residential dwelling = a place fit for long-term residence with living facilities.
Long-term hostels/PGs qualify.
Actual Residential Use
The Supreme Court clarified:
“Use as residence” refers to functional end-use — not who the lessee is.
Even if a company takes the lease and sublets it, the property is still “used as residence.”
This overrules AAAR’s interpretation that the lessee must personally reside.
Taxability Differentiators — A Clear Practitioner Matrix
| Scenario | Property Type | End Use | GST Treatment | Why |
|---|---|---|---|---|
| Residential property leased to aggregator → used for long-term hostel/PG | Residential | Residential | Exempt | SC: End-use is residential; lessee identity irrelevant |
| Residential property leased to company → employee long-stay residence | Residential | Residential | Exempt | “Use as residence” test satisfied |
| Residential property leased for corporate guest house / short-term stays | Residential | Temporary/commercial | Taxable (18%) | Guest houses not treated as residential dwelling |
| PG/Hostel with transient occupancy (daily/weekly turnover) | Mixed/Commercial | Transient | Taxable | Treated like lodging/hotel services |
| Property constructed as hostel/commercial lodging | Non-residential | Hostel | Taxable | Nature of property itself is commercial |
| Serviced apartments with hotel-like amenities | Residential | Commercial hospitality | Taxable | Falls under accommodation services |
This matrix is now a definitive compliance tool.
Court’s Reasoning — Analytical Breakdown
Residential Dwelling Interpreted through Common Parlance
Since GST law gives no definition, the Court relied on broad, ordinary meaning.
Long-term hostels/PGs match the attributes of residential dwellings.
They are clearly distinct from:
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Hotels
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Motels
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Lodges
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Guest houses
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Commercial accommodation
The Court stressed: design, duration, and functionality determine residential nature.
Lessee’s Identity Is Not a Condition in the Exemption
The Revenue incorrectly argued:
“Because the lessee is a company, exemption fails.”
The Court rejected this as legally baseless:
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Entry 13 does not require the lessee to reside.
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GST exemption is based on use, not who uses.
This interpretation aligns with principles of beneficial interpretation, applied especially where purpose is to protect residential housing from tax burdens.
Purposive Interpretation Overrides Rigid Technicality
The Supreme Court reiterated that exemptions connected to basic residential use must be construed liberally once conditions are met.
Charging GST merely because a company is the tenant would distort the very objective of the exemption.
Judicial Support for the Ruling
This decision harmonises with:
Earlier Service Tax Position
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Residential dwelling renting was exempt
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Hostels/PGs with long-term use treated as residential dwellings
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Education Guide (2012) supports this understanding
High Court Judgments
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Karnataka High Court in the same matter
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Gujarat High Court (hostel/PG with long-stay residents = residential dwelling)
Global VAT Practices
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EU & UK VAT: Long-term residential renting is exempt
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Only short-term lodging is taxable
The Supreme Court’s logic aligns with international jurisprudence.
Final Taxability Position After Supreme Court Judgment
GST Exempt When
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The property is a residential dwelling
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The end-use is residential (long-term living)
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The tenant may be an individual, partnership, LLP, company, aggregator
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Subleasing ultimately results in residence (hostel/PG/co-living for long stays)
GST Applies When
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The building is commercial in nature
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Use is temporary, transient, or hotel-like
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Amenities convert it into hospitality service
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The property is designed as a hostel/lodge from inception
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Guest houses or daily/weekly PG stays are provided
Professional Takeaway
When analysing GST on renting for hostels/PGs/co-living, apply this guiding principle:
Once the property is a residential dwelling and is actually used for residence, GST exemption under Entry 13 applies—regardless of intermediaries or the corporate character of the lessee.
This judgment is now the final word and should guide scrutiny replies, assessments, GST structuring, and lease documentation.
