Supreme Court Clarifies GST Exemption: Leasing Residential Property as a Hostel Qualifies as ‘Residential Dwelling’

The respondent, a co-owner of a 42-room residential property in Bengaluru, had leased the premises to the company, which in turn provided long-stay accommodation (3-12 months) to students and working professionals. The landlord sought clarity on whether such leasing qualified as “renting of residential dwelling for use as residence” under Entry 13 of Notification No. 9/2017-IGST (Rate).

Appeal Before AAR and AAAR: Both the AAR and AAAR had rejected the claim, holding that the property operated as a hostel and that the lessee, being a company, was not personally “using” the premises for residence.

Appeal Before HC: Karnataka High Court order that had set aside an Advance Ruling and Appellate Authority ruling which denied GST exemption to the landlord leasing a residential building to the aggregator, M/s DTwelve Spaces Pvt. Ltd., for use as a hostel.  It held that the exemption was activity-based, not dependent on the lessee’s personal use. The Revenue carried the matter to the Supreme Court.

Issue to be Decided: Whether leasing a residential dwelling to an intermediary who sub-lets it as hostel accommodation can qualify as “renting of residential dwelling for use as residence” under Entry 13 of Notification No. 9/2017-IGST (Rate), thereby exempting it from GST.

Appeal Before Hon’ble SC: The Supreme Court dismissed the Revenue’s appeals, upholding the High Court’s view that the exemption applied for the period before 18 July 2022. The Court held that the property was undeniably a “residential dwelling” and that Entry 13 did not impose any condition requiring the lessee itself to reside in the premises. The Court emphasized, that what mattered was the ultimate use, and the students and working professionals occupied the premises for long-term residence, fully satisfying the requirement of “use as residence”.

The Court applied a purposive interpretation, noting that the exemption was meant to prevent residential use from being burdened with GST. It rejected the Revenue’s attempt to rely on the 2022 amendment, whereby the exemption was withdrawn if the property was rented to a registered person, observing that such changes cannot be applied retrospectively. The Court concluded that all three elements were fulfilled, i.e., renting, residential dwelling, and use as a residence. Thus, the respondent was entitled to full GST exemption for the relevant years.

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