Residential Rentals Under GST: SC Clarifies Entry 13 and Prospective Amendment

Residential Rentals Under GST: SC Clarifies Entry 13 and Prospective Amendment

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  • Residential Rentals Under GST: SC Clarifies Entry 13 and Prospective Amendment

In a recent landmark ruling1, the Supreme Court has revisited and clarified the scope of the term “residential dwelling” under GST law, addressing long-standing interpretational issues surrounding Entry 13 of Notification No. 9/20172. The Court, while examining what qualifies as a residential dwelling, has also reaffirmed the legislative intent behind granting the exemption for residential use. 

This decision carries substantial implications for real estate lessors, co-living operators, and rental businesses particularly for transactions prior to July 2022, when the exemption was unconditionally available. It also brings clarity on the prospective amendment to the exemption notification w.e.f. 18th July 2022.

 

I. Background

Under GST law, renting of immovable property is generally treated as a supply of service, with a specific exemption for residential dwellings used as residences under Entry 13. Though it looked straightforward, there were multiple interpretations on 

  • what constitutes a “residential dwelling”; and
  • whether the exemption depends on who occupies it or the purpose of use. 

While these interpretational issues persisted, the notification was amended in July 2022 to exclude cases where a residential dwelling is rented to a registered person. Due to this, there were further questions on the applicability of unconditional exemption for periods prior to the amendment. 

Though all these matters were handled at the High Court level, its ruling was further challenged by the Revenue, leading to the Supreme Court’s intervention and the recent decision.

 

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II.Facts of the case

  • 01

    In June 2019, the co-owners of a residential property in Bengaluru (Taghar Vasudeva Ambrish being one of the co-owners and the lead petitioner) leased the property to M/s DTwelve Spaces Pvt. Ltd. The lessee in turn sub-let it as a hostel to students and working professionals for medium- to long-term stays.

  • 02

    Mr. Taghar sought an advance ruling on the applicability of Entry 13 of the exemption notification, seeking clarity on GST applicability on the rent received from M/s DTwelve Spaces Pvt. Ltd.

  • 03

    In March 2020, the Authority for Advance Ruling (AAR) held that the exemption doesn’t apply, as the lessee is a company and not personally using the premises for residence³.

  • 04

    Mr. Taghar further appealed to the Appellate AAR (AAAR) for clarity.

  • 05

    In August 2020, AAAR also supported AAR’s ruling, further adding a point that it doesn’t even constitute a residential dwelling⁴.

  • 06

    Mr. Taghar filed a writ petition before the Karnataka High Court questioning the denial of exemption.

  • 07

    In February 2022, the High Court passed the order accepting Mr. Taghar’s claim of exemption⁵, upholding that it does constitute as a residential dwelling and there is no condition in the exemption notification that the lessee itself has to use the premises as a residence, and hence, the end use as a residence would suffice for the exemption to apply.

  • 08

    Dissatisfied with the High Court’s judgement, the Revenue filed an appeal before the Supreme Court.

  • 09

    Meanwhile, in July 2022, there was an amendment to the exemption notification, restricting exemption in case the residential property is rented to a registered person under GST.

III. Issue Involved

Whether a hostel accommodation setup can qualify as a “residential dwelling” for the purpose of GST exemption.

Whether the requirement of “use as residence” under Entry 13 is to be interpreted based on the purpose of use or limited only to the person directly taking the property on lease.

Whether the July 2022 amendment removing the exemption for rentals to registered persons applies only prospectively, allowing the earlier period to retain the original unconditional exemption.

IV. Outcome of the case

The Supreme Court rejected Revenue’s claim and supported exemption in favour of Mr. Taghar, holding that:

A hostel qualifies as a residential dwelling and is not comparable to hotels, lodges or similar facilities meant for temporary stopovers.

The exemption does not require the lessee (the company in the current case) to personally reside in the premises. What matters is the end-use, i.e., whether the property is ultimately used as a residence by the occupants (students and working professionals in this case).

From 18th July 2022, pursuant to amendment to the exemption notification, there is no exemption available in cases where the residential property is rented to a registered person. However, giving retrospective application to the amendment is impermissible. Hence, the unconditional exemption would still be applicable to the period prior to 18th July 2022.

V. Key matters discussed in the judgement

A hostel satisfies the test of a residential dwelling.

  • The CBIC Education Guide (20.06.2012) issued under the erstwhile service tax regime was relied upon, which defines a residential dwelling as residential accommodation distinct from hotels, motels, inns and guest houses and similar places meant for temporary stay.

  • The Court also examined dictionary meanings of the terms ‘residence’ and ‘dwelling’ along with judicial precedents6, which describe residence as a place where a person lives, eats and sleeps, and clarified that permanence is not an essential requirement and may include temporary but continuous living. This is totally different from hotels and lodges, which act as temporary stopovers.

  • It was also noted that BBMP (Bruhat Bengaluru Mahanagara Palike) khatha records, zoning regulations, and sanctioned plans classified the premises as residential, affirming its character as a residential dwelling, and the Court clarified that incidental commercial or profit-orientated activity does not alter this character as long as the dominant use remains residential.

Ultimate use as a residence is relevant; the lessee need not personally reside.

  • Entry 13 does not impose any condition that the lessee must himself reside in the premises. Adding such an interpretation would mean adding additional words to the notification and defeating the legislative intent of granting exemption for residential use7.

  • Applying purposive interpretation8, the Court held that the exemption is intended to prevent residential accommodation from being burdened with GST. Hence, the ultimate use as a residence matters, and person-specific conditions would be improper.

Amendment in the exemption notification and its prospective effect.

  • The amendment effective from 18 July 2022 excluding rentals to registered persons was held to apply only prospectively, and the exemption would continue to remain unconditional for the prior periods.
  • An additional explanation has also been added to the notification saying that the exemption continues where such a service recipient is a registered person, being a proprietor, who uses such a building in their personal capacity for their own residence.
  • This explanation reinforces the legislative intent to exempt genuine residential use, irrespective of the technical registration status of the recipient.

VI. Advith’s Comments

The judgement effectively protects taxpayers for periods prior to July 2022 by reaffirming the legislative intent of exempting genuine residential use from GST. By focusing on ultimate residential consumption, the Supreme Court has provided clarity and reinforced the consistent view adopted by various High Courts.

The Court emphasised that charging GST on the lessee would result in burdening and passing it on to the ultimate occupants. However, the post-July 2022 framework, which taxes rentals to registered persons, appears to reintroduce the ultimate tax burden at the occupant level, potentially defeating the objective of the exemption.

This case also exposes a structural issue, where an exemption originally linked to the nature of residential consumption has shifted to a registration-based test. As a result, residential accommodation provided through organised and professionally managed models such as hostels and co-living spaces may bear higher costs compared to informal or direct renting arrangements, even though the end use remains identical.

While this case has clarified that hostels fall within Entry 13, long-term hostel and student accommodation are independently and expressly exempt under Entry 12AA9. Accordingly, where accommodation is provided for more than 90 days and the consideration does not exceed ₹20,000 per person per month, the supply is directly covered by a statutory exemption, without the need for debates based on judicial rulings.

 

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VII. Reference:

  1. State of Karnataka v. Taghar Vasudeva Ambrish (SC, 4-12-2025).
  2. Notification No. 9/2017–Integrated Tax (Rate) dated 28.06.2017, Entry 13.
  3. In re: Taghar Vasudeva Ambrish, Authority for Advance Ruling, Karnataka, order dated 23 March 2020.
  4. Taghar Vasudeva Ambrish v. State of Karnataka, Appellate Authority for Advance Ruling, Karnataka, order dated 31st August 2020.
  5. Taghar Vasudeva Ambrish v. State of Karnataka, Karnataka High Court, judgement dated 07 February 2022.
  6. Bandu Ravji Nikam v. Acharyaratna Deshbushan Shikshan Prasarak Mandal W.P. No. 4194 of 1989 (Bom HC, decided on 12-09-2002); Kishore Chandra Singh Deo v. Babu Ganesh Prasad Bhagat, AIR 1954 SC 316.

  7. Union of India v. Wood Papers Ltd., (1990) 4 SCC 256.

  8. Shailesh Dhairyavan v. Mohan Balkrishna Lulla, (2016) 3 SCC 619.

  9. Entry 12AA inserted in Notification No. 12/2017 Central Tax (Rate) vide Notification No. 04/2024 Central Tax (Rate) dated 12.07.2024.