• Dated 12^th December, 2025

SC pronounced that GST will not be payable on Residential Rentals to Co-Living Operators for Pre-2022 Years

Brief Facts

The respondent owns a residential building in Bengaluru with 42 rooms. In 2019, this building was leased to DTwelve Spaces Pvt. Ltd., a company that takes residential properties on rent and provides long-term hostel/PG accommodation to students and working professionals for stays of 3 - 12 months. The landlord sought clarity on whether GST applied on the rent he received, as renting a residential dwelling for residence is normally exempt from GST. Hence, the landlord made application before the AAR and AAAR of Karnataka to classify the said services as exempted supply. However, both AAR and AAAR of Karnataka denied exemption on the grounds that DTwelve itself was not residing there and that the building functioned like a hostel. Later the responded file a writ before the hon'ble High Court of Karnataka and the Hon'ble HC had allowed the exemption. Later Revenue had appealed to the Supreme Court, raising the question that "Does GST exemption apply when a residential property is leased to a company that sub-lets it for long-term residential use?"

Contention of Appellant

The Revenue argued that GST exemption should not apply because the Exemption must be judged only on the first lease i.e., between the landlord and DTwelve. The conduct of sub-tenants (students/workers) cannot be considered. DTwelve is not using the property as a residence, and Revenue claimed that the exemption implicitly requires the lessee itself to reside there. The building, having 42 separate rooms with washrooms, resembles a hostel/guest house rather than a typical residential dwelling, and therefore should not qualify for exemption. Exemptions must be interpreted strictly, meaning unless all conditions clearly fit, tax should apply.

The 2022 amendment, which removed exemption where a residential dwelling is rented to a registered person, supports their view that exemption was never intended for arrangements like this (though the amendment applies only prospectively). In essence, Revenue's stand was that the lessee's identity and usage should decide GST applicability and not the actual residential use by the sub-tenants.

Contention of Respondent

The assessee submitted that the property is a residential dwelling, as confirmed by municipal records and long-term residential use. It was argued that Entry 13 of Notification No. 9/2017-IGST does not require that the lessee personally reside in the property; it is sufficient that the property is used for residential purposes by the final occupants. The assessee pointed out that after the 2022 amendment they began complying with the amended law, but for earlier years the exemption should apply because the amendment is prospective and cannot be applied retrospectively

Held by Court

The Court held that the building used for long-term hostel/PG accommodation is a residential dwelling and that such long-stay arrangements are residential in nature. The Court clarified that Entry 13 of Notification No. 9/2017-IGST does not mandate that the lessee must personally reside in the premises; residential use by the end occupants (room tenants) satisfies the condition for exemption. The exemption under Entry 13 is activity-based on the nature of use and a narrow reading that denies exemption on the basis of the lessee's identity would defeat legislative intent. The Court further observed that the 2022 amendment is prospective and cannot be invoked to deny exemption retrospectively. Accordingly, the appeals by the Revenue were dismissed and the exemption allowed for the period 2019–2022.

Author Remarks

This ruling confirms that PG/hostel-type long-term accommodation qualifies as residential use for purposes of Entry 13 of Notification No. 9/2017-IGST, and that the 2022 amendment cannot be applied retrospectively to deny exemption for earlier years. The decision reinforces the interpretation that exemptions tied to residential use depend on the actual use of the property rather than on whether the immediate lessee is a company. It is a favourable precedent for landlords and co-living operators contesting similar GST demands.

Case Reference: State of Karnataka vs. Taghar Vasudeva Ambrish (2025) 37 Centax 102 (S.C.) [04-12-2025]

Author: Soumaditya Chakroborty

Edited By: Saket Shaw