GST on Hostel and Accommodation with Food Services

GST on Hostel and Accommodation with Food Services is a vital point of discussion for the Hospitality industry. The recent rulings by the Authority of Advance Rulings (AAR) offered clarity on the implementation of GST on Hostel and Accommodation with Food Services. Therefore we must understand how these regulations impact Hostel and Accommodation with Food Services. This article provides information about the key GST Implications on Hostel and Accommodation with Food Services, from exemption eligibility to ancillary service classification and reverse charge mechanism obligations, etc.

What Covers under Hostel and PG Accommodation?

Under the scope of GST on hostel and accommodation with food services, various aspects are considered, covering not only lodging services but also ancillary amenities provided to residents. These include:

• Accommodation charges- The charges paid by residents for lodging facilities.

• Ancillary Services- GST implication on Hostel and Accommodation also have additional services that need clubbing, such as meals (breakfast, lunch, dinner), furnished rooms, security, housekeeping, laundry facilities, internet access, television, and parking facilities.

• Utilities- Charges for utilities like electricity, water, and internet usage, which are often included in the overall bill, are also part of the hostel and PG accommodation services.

• Common Area Maintenance- Costs associated with the maintenance of common areas, such as corridors, lounges, etc. are covered under these services.

• Security Deposits and Administrative Fees- Any security deposits collected from residents, as well as administrative fees or charges for registration, may also be considered part of the hostel and Accommodation with Food Services.

Applicability of GST to Hostels and PG Accommodation

As per the rulings of AAR, GST on short-term accommodation is now applicable from 19 July 2022 onwards. These services not only include lodging but also ancillary amenities like meals (breakfast, lunch, dinner), furnished rooms, security, housekeeping, laundry facilities, internet access, television, and parking facilities.

Additionally, the AAR clarified that the charges for these services are taxable under GST, irrespective of whether they are considered optional or compulsory to the main accommodation service.

Furthermore, as per the provisions of Notification No.13/2017-Central Tax (Rate), Registered operators of hostels and PG accommodations are liable to pay GST under RCM on rental payments to landlords as highlighted by the rulings of AAR.

GST on Combined Services (Accommodation and Food)

How does GST apply when hostels provide both accommodation and food services?

As per the rulings of the AAR, when hostels provide both accommodation and food services, GST applies to both components separately.

• Accommodation Services- Charges for providing lodging facilities to residents are subject to GST. This includes the rent or tariff paid by individuals for occupying rooms within the hostel or PG accommodation. The rate of GST on hostel will vary depending upon the amount charged per room, also known as room tariff, and the type of accommodation such as AC or non-AC, Furnished or Non-Furnished, etc.

• Food Services- If the hostel also provides food services to its residents, either as part of the accommodation package or as an additional service, then these food services are also subject to GST. The rate of GST on hostel will depend upon whether the food is served in non-AC or AC premises.

What is the tax rate for combined hostel services?

In the case of Srisai Luxurious Stay LLP [Ruling No. KAR ADRG 25/2023 dated JULY 13, 2023], The Authority of Advance Ruling (AAR) Karnataka ruled that hostel and PG accommodation cannot be considered equivalent to residential accommodation and are not eligible for exemption and accordingly are taxable under GST @12%.

GST Exemption for Low-Cost Hostels

Services by way of renting a Residential dwelling for use as a residence as per entry no 12 of exemption notification no 12/2017-CT(Rate) are covered under the exemption.

However, vide notification 3/2022-CT and 4/2022-CT(Rate) the exemption has been removed from the renting of a Residential dwelling to a registered person. In this case, the registered recipient is made liable to pay GST under reverse charge on the residential dwelling. 

Similarly, the exemption is no longer available post 18/07/2022 to GST on hostel accommodation priced up to 1000 per day which would be taxed at 12%.

What Are the Registration Requirements and Threshold for Hostels under GST?

The Registration requirements for GST on hostel accommodation are the same as any other goods or services. If the aggregate turnover of the hostel or PG accommodation crosses the prescribed threshold limit of 20 lakh or 10 lakh in some states as the case may be, the hostel or PG accommodation is required to obtain GST registration.

Also, GST on reverse charge will be applicable on the rental to be paid to the landowners by the applicant as the services of the applicant are leviable to GST and thus the applicant has to obtain GST registration.

Recent Changes in GST Rules for Hostels (Dispute Resolution & Advance Rulings for Hostels)

The recent changes in GST rules for Hostels are as follows:-

1. The Hostels and Accommodations with food services charging less than 1000 per day were exempt from GST. However, from July 19, 2022, and onward the exemption no longer exists and GST on hostel accommodation becomes applicable on such services.

2. The Authority of Advance Ruling provided clarity regarding the liability of GST on Hostel and Accommodation providing such services. The ruling clarifies that Hostels and PG accommodation services are not exempt from GST and are subject to tax at a rate of 12%.

Are Hostels considered as Residential Dwellings for GST Purposes?

The Authority for Advance Ruling (AAR), Karnataka, clarified that the accommodation services provided by hostels, including paying guest accommodations, service apartments, and flats, do not qualify as residential dwellings for use as residences. The AAR further added that since hostels provide temporary accommodation to inhabitants, they are akin to guest houses or lodging services rather than residential dwellings intended for permanent stay.

Statutory Compliance and Record Keeping for Hostels

As the GST implications on hostel industry are now clarified as per the ruling of AAR, The statutory compliance and record-keeping requirements for GST on hostel accommodation services are as under-

1. GST Registration- As GST on hostel accommodation is applicable, Hostels providing accommodation services are required to register for GST if their aggregate turnover exceeds the threshold limit of 20 lakh or 10 lakh.

2. Tax Invoicing- Hostels must issue proper tax invoices for the services provided to the inhabitants. The invoice must include GSTIN, description of service, invoice no, etc.

3. GST Returns- After getting registered under GST, it becomes compulsory for hostel and accommodation with food services to file GST returns on or before the due dates.

4. Payment of GST- The tax collected by the hotels from the inhabitants for the services provided by them needs to be remitted to the government on time.

5. Record-Keeping- Hostels must maintain proper records of all transactions, including invoices, receipts, vouchers, and accounting records so as to produce to authorities as and when required by them.

Conclusion

The Hostel and Accommodation with Food Services are no longer exempt from GST as per the clarification provided by AAR Karnataka. The AAR provided clarity regarding the taxability of GST Implication on Hostel and Accommodation. The ruling of AAR clarifies that hostels are not considered residential dwellings for GST purposes and are subject to GST at a rate of 12%. The implication of GST on hostel facility and GST on homestay accommodation requires them to get GST registration after crossing the threshold limit and also requires them to follow statutory compliance and record-keeping requirements.

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