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Informist, Thursday, Dec. 4, 2025

 

NEW DELHI – The Supreme Court on Thursday held that no goods and services tax will apply on the services of a lessee subletting residential premises for a hostel for students and working professionals. The apex court rejected the commercial tax department's argument that since the lessee did not use the hostel as a residence but rather sub-leased it, such transactions do not fall within the exemption provided by the government through a 2017 notification. The court said that the government's 2017 notification does not require the lessee to use the residential dwelling as its own residence. 

 

The legislative intent behind this exemption clause is that a rented property that is used as a residence should not suffer 18% goods and services tax or integrated goods and services tax, a bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan said. However, if the exemption is given a narrow interpretation, it will not be available in cases where a lessee has subleased the property for use as a residence. 

 

The apex court noted that in the case before it, the ultimate use of the property as a residence remains unchanged. However, if 18% GST is levied on this transaction between the co-owner of the property, Taghar Vasudeva Ambrish and the lessee DTwelve Spaces Pvt. Ltd., the same would ultimately be passed on to the students and working professionals, which would lead to a situation where the legislative intent behind granting exemption for residential use is defeated, the bench added. The top court said the government's exemption was activity-specific, not person-specific.

 

In 2022, the government introduced an amendment stating that the exemption would not apply if the residential dwelling is rented to a registered person. However, to its explanation, the government said that the exemption from tax will be available if the registered person is the proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence. Taking note of the 2022 notification, the apex court said that the government's intention from the beginning was to ensure that rental agreements for the use of property for residential purposes are exempt from GST. 

 

Taghar Vasudeva Ambrish, the co-owner of a Bengaluru property comprising 42 rooms, executed a lease deed in 2019 in favour of DTwelve Spaces. The lessee, in turn, leased the residential property as a hostel to provide long-term accommodation to students and working professionals, with stays ranging from 3 to 12 months. A dispute arose over the applicability of the goods and services tax to the service of a lessee subleasing a residential dwelling for hostel use, which led to a series of litigations.  End

 

Reported by Surya Tripathi

Edited by Saji George Titus

 

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