The Supreme Court has held that leasing a residential property to an intermediary company for use as a hostel by students and working professionals qualifies as “renting of residential dwelling for use as residence” under Entry 13 of Notification No. 9/2017–IGST, and is therefore exempt from GST for the period prior to the 2022 amendment.
The Bench observed that the exemption does not require the lessee itself to use the premises as a residence. Once the property is ultimately used as a residence by the sub-lessees (students or working women), the statutory conditions for exemption stand satisfied. Imposing tax merely because an aggregator is the tenant would amount to adding words to the notification, which the law does not permit.
The Court further held that a hostel used for long-term residential stay remains a “residential dwelling” in common parlance, and that the High Court was right in applying the purposive interpretation in line with earlier precedents under service tax law. It emphasised that levying 18% GST in such cases would defeat the legislative intent behind granting exemption for residential use, as the burden would ultimately fall on students and working professionals.
Rejecting the Revenue’s argument that only the direct lessee can “use” the property for residence, the Court clarified that the exemption is activity-specific, not person-specific. What matters is the nature of the renting and the ultimate residential use, not the character of the intermediary tenant.
The Bench also noted that the 2022 amendment withdrawing exemption where a residential dwelling is rented to a registered person cannot be given retrospective effect.
Holding thus, the bench comprising Justices J.B. Pardiwala and K.V. Viswanathan upheld the Karnataka High Court’s decision that the respondent-lessor was entitled to exemption on rental income for the period 2019–2022 when the property was used for long-term residential accommodation.
Case Title: State of Karnataka & Anr. v. Taghar Vasudeva Ambrish & Anr.
Citation: 2025 INSC 1380