GST on Hostel, Paying Accommodations to Attract 12% GST, Here's Why

The Goods and Services Tax (GST) regime in many countries, including India, has been designed to simplify and standardize the tax structure for goods and services across all sectors. When it comes to hostels and paying guest (PG) accommodations, the applicability of GST can vary based on certain criteria, such as the charges per day and the nature of services provided.

As of the latest updates, hostel and paying guest accommodations have been brought under the GST umbrella, attracting a 12% tax rate. This decision is part of the broader effort to bring uniformity in tax rates for different services and ensure a level playing field for all service providers. Here’s why this tax rate is applied:

Reasons for 12% GST on Hostel and Paying Guest Accommodations

• • Standardization of Services: By applying a 12% GST rate, the government aims to standardize the tax structure across various types of short-term accommodation services, ensuring that similar services are taxed uniformly.
• • Increased Revenue: Implementing GST on such accommodations increases government revenue, which can be used for public services and infrastructure development. It ensures that all segments of the hospitality and real estate sector contribute to the economy.
• • Regulation and Formalization: Imposing GST helps in the regulation and formalization of informal sectors. Many hostels and PG accommodations operate without proper registration and regulation. Bringing them under the GST net encourages these entities to formalize their operations, thereby enhancing safety and service standards.
• • Input Tax Credit Benefits: For operators of hostels and PG accommodations, registering under GST allows them to claim Input Tax Credit (ITC) on the goods and services they purchase to run their business. This can lead to cost savings and potentially improve service quality.
• • Consumer Protection: With the formalization and standardization of the tax structure, consumers gain clarity on the taxes they are paying, and it safeguards their interests by ensuring they receive services from registered and compliant operators.

Impact on Consumers and Operators

• • For Consumers: The imposition of a 12% GST on hostel and PG accommodations might lead to a slight increase in costs for students and working professionals who rely on these services. However, it also promises improved transparency and potentially better services.
• • Operators: Hostel and PG operators need to ensure compliance with GST regulations, which includes registration, tax filing, and adherence to tax rates. While this may increase the administrative workload, it also offers benefits like the ability to claim ITC.

Conclusion

The application of a 12% GST on hostels and paying guest accommodations is aimed at standardizing the tax treatment of accommodation services, enhancing revenue, and encouraging the formalization of this sector. Both consumers and operators are impacted by this change, with implications for costs, compliance, and service quality.

FAQS

Q1. Why is GST now applicable on hostel and PG accommodations?
Ans1 The Authority for Advance Rulings (AAR) determined that hostel and PG accommodations do not qualify as "residential dwellings" under GST law. Therefore, they are subject to GST, as they are considered commercial establishments providing lodging services. ​

Q2. What is the applicable GST rate for hostel and PG accommodations?
Ans2 As per the AAR rulings, hostel and PG accommodations are subject to a 12% GST rate. This rate applies to services that do not fall under the exemption for residential dwellings. 

Q3. Are there any exemptions to this GST applicability?
Ans3 Previously, accommodations charging below ₹1,000 per day were exempt from GST. However, this exemption was withdrawn effective July 18, 2022. Currently, there are no specific exemptions for hostel and PG accommodations under GST. ​

Q4. Does the duration of stay affect GST applicability?
Ans4 No, the duration of stay does not impact GST applicability. Whether the stay is short-term or long-term, if the accommodation is categorized as a hostel or PG, it is subject to GST as per the AAR rulings. ​

Q5. Can hostel and PG operators claim Input Tax Credit (ITC)?
Ans5 Yes, operators providing taxable services under GST can claim ITC on inputs and input services used in the course of providing these accommodations, subject to compliance with GST provisions. 

Q6. How does this GST impact residents of hostels and PGs?
Ans6 Residents may experience an increase in accommodation costs, as operators may pass on the GST burden to them. It's advisable for residents to check if GST is included in their rent and request proper invoices reflecting GST charges.​

Q7. Are there any recent legal developments regarding GST on hostels and PGs?
Ans7 Yes, various AAR rulings, including those from Karnataka and Tamil Nadu, have clarified the GST applicability on such accommodations, reinforcing the 12% GST rate and the non-exemption status of hostels and PGs. ​

Q8. What should hostel and PG operators do to comply with GST regulations?
Ans8 Operators should register under GST if their turnover exceeds the threshold limit, charge the appropriate GST rate on accommodations, issue proper tax invoices, and file regular GST returns to ensure compliance.​

About the Author

Sakshi Kashyap

Content Writer

Sakshi Kashyap is a passionate and skilled content writer with a flair for crafting compelling and engaging content. With a keen eye for detail and a deep understanding of audience preferences, she specializes in creating well-researched, SEO-friendly, and impactful content across various niches.

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