PG/hostel accommodation ruled taxable under GST as temporary stay, not residential dwelling exemption

AAR Karnataka ruled that PG/hostel accommodation does not qualify as "residential dwelling" under GST exemption since it constitutes temporary stay similar to guest houses, lacks individual kitchen facilities, and prohibits cooking by inhabitants. The authority held that additional services like parking, food, and washing facilities are separate optional services, not naturally bundled with accommodation, requiring separate taxation. The applicant must obtain GST registration and pay GST at 18% under reverse charge mechanism on rental payments to landowners, as the services are taxable under GST.

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Issues Involved:
1. Whether PG/Hostel Rent paid by inhabitants qualifies for GST exemption.
2. Whether the charges collected towards allied additional services are considered as a bundled service.
3. Whether GST on reverse charge will be applicable on the rental to be paid to the landowners.

Issue-wise Comprehensive Details of the Judgment:

1. GST Exemption for PG/Hostel Rent:
The applicant sought a ruling on whether PG/Hostel Rent qualifies for GST exemption under Exemption entry No. 12 of Notification No. 9/2017. The Authority examined Notification No. 12/2017-Central Tax (Rate) and concluded that the term "residential dwelling" does not include accommodations like hostels or paying guest services. The applicant's services, characterized by shared rooms and ancillary services, do not meet the criteria for "residential dwelling" meant for permanent stay. Therefore, the PG/Hostel Rent paid by inhabitants does not qualify for GST exemption under SI No. 12 of Notification No. 12/2017-Central Tax (Rate).

2. Bundled Services:
The applicant inquired whether the charges for allied additional services (meals, furnished rooms, security, housekeeping, washing machine, television, internet, and parking) should be considered as a bundled service with the main service of providing hostel/paying guest accommodation. The Authority determined that these additional services are optional and not integral to the main service. Since inhabitants may choose not to avail of these services, they are not naturally bundled with the main service. Therefore, these allied additional services are separate and need to be taxed individually.

3. GST on Reverse Charge for Rental Payments:
The applicant questioned the applicability of GST on reverse charge for rental payments to landowners. The Authority referred to Notification No. 13/2017-Central Tax (Rate) as amended by Notification No. 05/2022-CT(R), which mandates that GST on rent for residential property is payable under reverse charge by a registered person. Since the applicant's services are subject to GST, they must obtain GST registration and discharge the GST liability under reverse charge at 18%.

RULING:
a) PG/Hostel Rent paid by inhabitants does not qualify for GST exemption under SI No. 12 of Notification No. 12/2017-Central Tax (Rate).
b) The allied additional services provided by the LLP are not naturally bundled with the main service of Hostel/Paying guest accommodation.
c) GST on reverse charge will be applicable on the rental payments to the landowners, and the applicant must obtain GST registration.

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