GST Implications on Paying Guest Accommodation Arrangements

Facts of the Case:

A Person is the Owner of the Residential Flat (hereinafter to be referred as the 'Tax Payer'). Tax Payer has entered into an agreement with a Paying Guest service provider (hereinafter to be referred as the 'Tenant'), who will pay a certain amount per month as rent to the Tax Payer, and the Tenant will sub-let the flat to the students as a temporary stay.

Issues:

1. Whether the Paying Guest Service provided by the Paying Guest Service provider to the Students is leviable to GST?

2. What will be the Taxability of the Rent Received by the Tax Payer from the Paying Guest Service Provider if the services provided by the Paying Guest Service provider is exempt, whether the benefit of Paying Guest Service Exemption be extended to the Tax Payer as well?

3. Will the Rental Income to be received by the Tax Payer from the Paying Guest Service Provider in the nature of Leasing of Residential Dwelling be Exempted under the heading 9972?

4. If no other source of Income is available and only source of income for both the Tax Payer and the Paying Guest Service Provider is via this very business transaction, do they both are liable to get registered under GST provided their Aggregate Turnover exceeds the Threshold Limit of 20 lakhs?

5. How will the judgement of the Hon'ble Supreme Court in the case of THE STATE OF KARNATAKA & ANR. Vs. TAGHAR VASUDEVA AMBRISH & ANR. Decided on December 4, 2025 will affect above understanding?

Deliberations:

1. Whether Paying Guest Service provided by the Paying Guest Service Provider to the Students is leviable to GST?

Services in the nature of Paying Guests are classified under the Group 99632, with Service Code (Tariff) as 996322 and Service Description as Room or unit accommodation services provided by Hostels, Camps, Paying Guest and the like.

Hence, the Exemption available vide Serial No 13 of the Notification No. 9/2017-Integrated Tax (Rate) dated 28th June, 2017, as amended on 12th July, 2024 vide Notification No. 04/2024- Integrated Tax (Rate), with regards to the Services by way of renting of residential dwelling for use as residence will not be available to the Paying Guest Service Provider.

However, Exemption under Service Code (Tariff) 9963 made available vide Notification No. 04/2024- Integrated Tax (Rate) dated 12th July, 2024 which came into effect from 15th day of July, 2024 will be available to the Paying Guest Service Provider, extract of the Notification is reproduced for ready reference,

'(C) after serial number 13 and the entries relating thereto, the following serial number and entries shall be inserted, namely: -

Thus, Exemption to the Paying Guest Service provider will be available if the following conditions are adhered to,

i. Value of Supply must be Less than or Equal to INR 20,000/- Per Person, Per Month; and
ii. The Accommodation Service is supplied for a minimum continuous period of 90 Days.

Both conditions must be satisfied cumulatively, hence if complied with, the services provided by the Paying Guest Service Provider will be Exempted from GST.

2. What will be the Taxability of the Rent Received by the Tax Payer from the Paying Guest Service Provider if the services provided by the Paying Guest Service provider is exempt, whether the benefit of Paying Guest Service Exemption be extended to the Tax Payer as well?

Services in the nature of Renting of Property are classified under the Group 99721, with Service Code (Tariff) as 997211 and Service Description as Rental or leasing services involving own or leased residential property.

The Services provided by the Tax Payer to the Paying Guest Service Provider and the services by the Paying Guest Service Provider to the Students are not the same, because both are independent transactions and can be classifiable separately without any ambiguity, hence the Exemption available vide Serial No. 13A of the Notification No. 9/2017-Integrated Tax (Rate) dated 28th June, 2017, as amended by the Notification No. 04/2024- Integrated Tax (Rate) dated 12-07-2024 to the Paying Guest Service Provider cannot be extended to the Tax Payer.

3. Will the Rental Income to be received by the Tax Payer from the Paying Guest Service Provider in the nature of Leasing of Residential Dwelling be Exempted under the heading 9972?

Extract of Exemption available vide Serial No. 13 of the Notification No. 9/2017-Integrated Tax (Rate) dated 28th June, 2017 amended vide Notification No. 04/2022 -Integrated Tax (Rate) dated 13-07-2022, Notification No. 15/2022 - Integrated Tax (Rate) dated 30-12-2022 and Notification No. 04/2024- Integrated Tax (Rate) dated 12-07-2024, is as follows,

Hence, Renting or Leasing of a Residential Dwelling for use as Residence is exempted from GST, provided that it is Not Rented to a Registered Person.

Therefore, to avail the benefit of the Exemption, satisfaction of all the three conditions is must, i.e.

i. Renting or Leasing must be of a Residential Dwelling,
ii. Use of the Property must be Residential Purpose only; and
iii. Tenant must not be a person Registered under the Goods and Services Tax Act, 2017

Explanation 1 to Serial No 13, extends the benefit of the tax Exemption to the Tenant being an Individual Registered Person, provided that the Property is being rented for the purpose of his own Residence and such Renting is on his own account and not on the behalf of his Proprietorship Concern.

Let us look at some of the possible scenarios effecting the third condition (iii.) as explained above combined with the Explanation 1 to Serial No. 13, first let us assume that, the Tenant, a Registered Person is not an Individual, it can be any other person, it may be a Partnership Firm, Private Limited Company, Trust, Association of Person etc., if such is the case the Exemption benefit will not be available to the Tax Payer and the Rent received from the Paying Guest Service Provider (Tenant) will be leviable to the GST.

Let us understand from the perspective of an Individual Tenant who is Registered under GST, if the Rented premise is either not used for his own Residence or is on the behalf of his proprietorship concern, the benefit of the Exemption of Tax will not be Extended to the Tax Payer and the Rental Income received from the Tenant (Paying Guest Service Provider) will be leviable to the GST.

4. If no other source of Income is available and only source of income for both the Tax Payer and the Paying Guest Service Provider is via this very business transaction, do they both are liable to get registered under GST provided their Aggregate Turnover exceeds the Threshold Limit of 20 lakhs?

If the conditions as specified under the Serial No. 13 & 13A are complied with satisfactorily, both the services i.e. of renting of Residential Dwelling for Residential Purpose by the Tax Payer to the Tenant (Paying Guest Service Provider) and that of Paying Guests Services to the Students will be Wholly Exempted from the GST.

In such a scenario provisions under Section 23 of The Central Goods and Services Tax Act, 2017 will determine the Registration requirement, Section 23 of the Act states that,

'Persons not liable for registration

23. (1) The following persons shall not be liable to registration, namely:--

(a) any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act;

(b) an agriculturist, to the extent of supply of produce out of cultivation of land.

(2) Notwithstanding anything to the contrary contained in sub-section (1) of section 22 or section 24, the Government may, on the recommendations of the Council, by notification, subject to such conditions and restrictions as may be specified therein, specify the category of persons who may be exempted from obtaining registration under this Act.'

Therefore, both the Tax Payer and the Paying Guest Service Provider will not be liable to get Registered under the Goods and Services Tax Act, 2017.

5. How will the judgement of the Hon'ble Supreme Court in the case of THE STATE OF KARNATAKA & ANR. Vs. TAGHAR VASUDEVA AMBRISH & ANR. Decided on December 4, 2025 will affect above understanding?

An issue involving similar facts was heard and decided by the Hon'ble Supreme Court in the case of THE STATE OF KARNATAKA & ANR. Vs. TAGHAR VASUDEVA AMBRISH & ANR. (2025 (12) TMI 505 - Supreme Court), however the matter decided by the Hon'ble Court was pertaining to the Period 2019-2022 and thereafter amendments were made to the Notification No. 9/2017-Integrated Tax (Rate) dated 28th June, 2017 in the year 2022 as referred in issue no 4 above. Nonetheless, the matter was decided by the Hon'ble Supreme Court on December 4, 2025, where the amendments made in the year 2022 was duly taken in to the consideration, and the extract of the relevant observations are as follows,

'66. Thus, from 18.07.2022, there is no exemption available for respondent 1, as he has rented to a registered person. Through these appeals, the revenue is, in effect, trying to give retrospective application to the amendment made in 2022, which is impermissible.

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68. The Explanation clearly shows that even if the rent is paid by a registered person, the exemption will be available if it is used for the purpose of own residence and is rented in the personal capacity. Therefore, the intention from the beginning was to ensure that rental agreements for use of the property for residential purposes are granted exemption from GST.

69. In view of the aforesaid discussion, we have reached the conclusion that we should not interfere with the impugned judgment and order passed by the High Court. As a result, both the appeals fail and are hereby dismissed.'

Hence, the conclusions as derived above, from the amended Notifications are not in any sort of contravention of the decision of the Hon'ble Supreme Court.

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