A recent ruling by the Authority for Advance Rulings (AAR) in Karnataka has sparked some concerns among students and young professionals in one of India’s biggest IT hubs, Bengaluru.

The decision to levy a 12% goods and services tax (GST) on rent paid for hostel accommodations and paying guest (PG) facilities is set to significantly impact the financial planning of students and working individuals residing in such accommodations.

Ruling and Background

The AAR’s ruling came in response to a case involving Karnataka-based Srisai Luxurious Stay LLP, a firm that develops and manages PG accommodations and hostels. The company argued that the rent for these accommodations should be treated similarly to residential dwellings, which are exempt from GST. However, the AAR disagreed, stating that hostel and PG accommodations do not qualify as residential dwellings and hence, are not eligible for GST exemption.

Impact on Affordability

This decision is expected to increase the cost of living for students and working individuals who opt for such accommodations. The 12% GST will be an additional expense over and above the rent they already pay. This could potentially make PGs and hostels less affordable for many, especially those from economically weaker sections.

Influence on Accommodation Choices

Moreover, the decision could also impact the decisions of students and working professionals when choosing their accommodations. With the added GST, many might reconsider their options and look for alternatives such as shared apartments, which might turn out to be more cost-effective.

Changes in Exemptions

In the past, accommodations with tariffs below ₹1,000 per day were exempted from GST. However, this exemption was lifted in a notification issued in July 2022, further adding to the financial burden of those residing in hostels and PGs.

The new GST rules present a significant shift in the financial landscape for students and working individuals living in hostels and PGs. It is crucial for these individuals to be aware of these changes and plan their finances accordingly. As for the authorities, it remains to be seen if any measures will be taken to mitigate the impact of this decision.

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