In a judgment that could impact thousands of hostel and PG operators across India, the Supreme Court on Thursday upheld a Karnataka High Court ruling that allowed GST exemption on leasing residential properties later sub-let as hostels. The bench led by Justice J.B. Pardiwala delivered a detailed and, at moments, sharply worded order explaining why the tax department’s narrow view could not stand.
Background
The case began after Bengaluru-based co-owner Taghar Vasudeva Ambrish leased a 42-room residential building to DTwelve Spaces Pvt. Ltd., a well-known aggregator that sub-lets properties to students and working professionals.
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The tax authorities refused exemption under Entry 13 of GST Notification 9/2017, arguing that since the company itself wasn’t “living” on the premises, the letting couldn’t be classified as renting for residential use. Both the Authority for Advance Ruling (AAR) and the Appellate AAR rejected the exemption claim. The High Court reversed these findings, prompting the State of Karnataka to appeal.
Court’s Observations
During the hearing, the bench appeared unconvinced by the revenue’s insistence that the lessee must personally reside at the property for exemption to apply. At one point, the court noted, “Giving Entry 13 a narrow interpretation… would ultimately defeat the legislative intent.”
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The judges examined the meaning of “residential dwelling”, tracing its treatment in earlier service tax laws and several court precedents. They emphasised that the property was approved as residential in municipal records and used by students for long-term stays ranging from three to twelve months. In simple terms, the Court said that such accommodation “remains a residence even if someone else pays the rent.”
The bench underscored that GST exemptions must first be strictly tested but, once applicable, interpreted liberally. Justice Pardiwala remarked in the order, “Once the exemption notification is applicable, full play should be given to it.” This meant the focus should be on the activity-residential use-rather than the identity of the immediate tenant.
The Court also pointed out that the purpose of the exemption was to prevent residential users from bearing an additional 18% financial burden. Imposing GST on the lease would, the Court noted, ultimately raise costs for students and working women-an outcome inconsistent with the policy.
One particularly sharp observation came when the bench stated, “There is no condition that the lessee must use the dwelling as its own residence… the legislative intent behind the exemption clause is clear.”
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On the government’s attempt to rely on 2022 amendments that restrict exemptions where property is rented to a registered entity, the Court was firm: the amendments cannot apply retrospectively.
Decision
Concluding that all three elements of Entry 13-renting, residential dwelling, and use as residence-were met for the period 2019–2022, the Supreme Court dismissed both appeals filed by the State of Karnataka. The High Court judgment stands, and the GST exemption remains applicable for the relevant period. The bench ended with an unequivocal line: “We find no reason to interfere.”
Case Title: The State of Karnataka & Anr. vs. Taghar Vasudeva Ambrish & Anr.
Case No.: Civil Appeal No. 7846 of 2023 (with Civil Appeal No. 7847 of 2023)
Case Type: Civil Appeal (Supreme Court of India – GST Exemption Dispute)
Decision Date: 4 December 2025
