12% GST on hostel rent and PG accommodations not applicable across India yet
July 31, 2023
Karnataka and UP AAR issued rulings in favor of 12% GST on PG and hostel rents, but it's not applicable nationwide as AAR rulings are binding only for the involved parties and tax authorities in their specific jurisdiction.
The recent news regarding the application of a 12 percent GST on rents paid for hostels and PG accommodations has triggered a flood of queries and comments on various social media platforms. In two separate rulings by Karnataka and UP AAR ( Authority of Advance Rulings) orders were issued in favour of 12 percent GST on rents paid on PG and hostels.
However, this ruling doesn’t apply to hostels and PGs across the country yet. This is because an AAR ruling is binding for the parties involved- the applicant and the tax authorities of the particular jurisdiction.
In the case of the Karnataka and UP AAR decisions, the applicability of the 12 percent GST ruling would hence be on the hostels and PG accomodations in Bengaluru and Noida. Experts believe that such a ruling can be applicable across the country only if the GST council pronounces on the matter or by a circular from CBIC.
"An Advance ruling by a State authority is only binding on the parties involved - the applicant and the tax authorities of the particular jurisdiction. Hence, the Karnataka ARR’s ruling about 12 percent GST on rent paid to hostels and PG will not extend to the rest of the country . For it to become applicable across the country the GST council will have to deliberate & recommend - or the CBIC has to issue a circular clarifying the position. Further this Advance ruling can be challenged in the State appellate authority for Advance Rulings," said Najib Shah, Ex- chairman, CBIC.
Experts also suggest that an advance ruling is not a legal precedent like the orders of a court but have pursuasive effect. This means that of more such cases come up in various parts of India before AARs, these rulings could be used for consistency in judgement.
"According to the Section 103 of the Central Goods and Services Tax Act, an advanced ruling pronounced by the AAR is binding only on the applicant and the jurisdictional officer. When an advance ruling is pronounced, it is in context of a set of questions or ongoing legal proceedings i.e. litigation. Therefore the views expressed by an AAR hence doesn’t become a precedent in litigation in jurisprudence, unlike the decision of a court. However an advance ruling has a pursuasive effect for other advance authorities," said Ranjeet Mahatani, Partner, Dhruva Advisors.
So, the cost of living in PGs and hostels will go up in select parts of the country like Bengaluru and Noida, other cities are not likely to charge 12 percent extra on such services until there is a circular from the CBIC or until there are other such rulings from the AARs across the country.
[CNBC TV 18]
