Karnataka AAR: 12% GST Applies on Living in PG or Hostel

The authority for advance rulings (AAR) in Karnataka held that a 12% GST is to be levied on the rent paid towards the paying guest (PG) and the hostel accommodations that do not similar to the residential dwellings.

AAR at the time of hearing the case of Srisai Luxurious Stay LLP stated that merely the rent for the residential dwellings does entitle to the GST exemption.

Previously, there was no GST on residential properties, hotels, inns, or guest homes with daily rent up to Rs 1,000. But, on July 13, 2002, the government issued a notification lifting the GST exemption for hotels and guest homes with rents of up to Rs 1,000 per day. The notification took effect on July 18, of that year.

The developer and operator of PG lodgings and hostels in Karnataka, Srisai, submitted a request to the AAR, arguing that since the rent for these establishments is similar to that for residential residences, there should be no GST added to it.

The authority noted that although the applicant said that they were taking a residential property on rent, they afterwards built walls and set up cots that were rented out. The number of individuals sharing a room determines how much the firm charges its customers.

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According to the AAR, the lodging is therefore not a residential abode but rather a room shared by strangers. Additionally, monthly charges are increased per bed. It noticed that they are not features of a residential home.

The petitioner acknowledged that there are no dedicated kitchens for each occupant and that cooking is not permitted. The AAR noted that they are not necessities for any permanent stay.

In the event that other states follow the AAR judgement, experts predict that proprietors of other PGs and hostels would be required to pay 12% GST if these establishments do not offer private cooking facilities and provide a single room to unrelated guests.

The AAR’s decision demonstrates the intricate intricacy of GST applications in the hotel industry.

Additionally, the authority decided that rent paid by the business to landowners would be subject to GST under the reverse charge mechanism (RCM), and the applicant would need to register for GST. RCM differs from conventional service delivery models in that GST is paid to the government by the service receiver.