GST on Renting Residential Property for Commercial Use: GUJ/GAAR/R/2025/48
Renting a residential building for commercial use, such as a hostel or PG, is subject to 18% GST.
- Ruling
- GUJ/GAAR/R/2025/48 dated 19.11.2025
- Dated
- 19 Nov 2025
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The applicant asked if renting a building for student housing is GST-exempt.
- The Authority ruled the activity is commercial, not residential.
- The service attracts 18% GST under the forward charge mechanism.
In short
The Gujarat Authority for Advance Ruling (GAAR) examined whether renting a residential building to a company for use as student or professional housing qualifies for a GST exemption. The authority decided that because the property is used for a commercial accommodation business, it does not qualify for the residential dwelling exemption.
What has changed
How it worked before
Many business owners assumed that if a building was structurally residential, renting it out would be exempt from GST regardless of how the tenant used the space.
What has changed
The ruling clarifies that the purpose of the lease determines the tax status. If you lease a property to a business that uses it to provide accommodation services, the transaction is treated as a commercial service taxable at 18%, not a residential one.
Who this affects
Property owners who lease residential buildings to companies or operators running hostels, PGs, or co-living spaces.
An example
Imagine a property owner, 'ABC Rentals', leases a house to a company that turns it into a paying guest (PG) facility. ABC Rentals might hope the rent is GST-exempt because the building is a house. Based on this ruling, the tax authority would likely view this as a commercial service and require ABC Rentals to charge 18% GST.
What you should do
This ruling only applies to the specific business that asked the question. If you are in a similar situation, do not assume you are exempt; consult a tax professional to review your specific lease agreement and business model.
If you do nothing
If you incorrectly claim an exemption, you risk a tax demand notice, interest charges, and penalties for non-payment of GST. A tax officer may disagree with your interpretation, and relying on a ruling that does not apply to you will not protect you from these consequences.
The terms explained
- Forward charge mechanism
- A system where the person providing the service is responsible for collecting and paying the GST to the government.
- Residential dwelling
- A property intended for use as a personal residence, rather than for business or commercial activities.
- Advance ruling
- A formal decision by tax authorities on how GST laws apply to a specific business transaction.
The ruling in detail
Authority for Advance Ruling
Goldie Ashokbhai Shah
GUJ/GAAR/R/2025/48 dated 19.11.2025 · Gujarat
Questions before the authority
- Whether the service of renting of Residential building provided by the Applicant to the Lessee, an unregistered person, for use as residential accommodation for the students and working professionals ("the Residents"), is exempt as per S. No. 12 of the Exemption Notification No. 12/2017 - Central Tax (Rate) dated 28 June 2017 and corresponding exemption notification issued under the Gujarat State GST Act?
- If the answer to above question is in negative, who shall be the person liable to pay GST on the impugned service of renting of residential dwelling and what shall be the applicable rate of GST thereupon?
Facts
The applicant, a co-owner of a residential building, proposed to lease the property to M/s Ashimara Living Private Limited, an unregistered company. The lessee intended to use the property to provide long-term residential accommodation to students and working professionals. The applicant sought a ruling on whether this renting service qualifies for the GST exemption under S. No. 12 of Notification No. 12/2017-Central Tax (Rate).
Ruling
| Question | What the authority ruled |
|---|---|
| Exemption under S. No. 12 of Notification No. 12/2017 | No The property is used for commercial activity, not as a residence. |
| Liability and rate of GST | Applicant is liable to pay GST at 18% Under Notification No. 11/2017-CGST(R) as amended. |
The Authority ruled that the service is not exempt because the property is being used for commercial purposes rather than as a residence. Consequently, the applicant is liable to pay GST on the renting service under the forward charge mechanism at the rate of 18%.
Reasoning
The Authority determined that the lessee is using the property for a commercial activity of providing accommodation services, which falls outside the scope of the exemption for residential dwellings. It relied on the draft lease agreement, which explicitly describes the property as a commercial building. The Authority distinguished this case from previous High Court rulings, noting that the legislative intent of the exemption is to cover only personal residential use. It concluded that the service falls under Sl. No. (iii) of Entry No. 16 of Notification No. 11/2017-CGST(R), attracting **GST at 18%**.
Provisions relied on
- S. No. 12 of Notification No. 12/2017-Central Tax (Rate)
- Notification No. 11/2017-CGST(R)
- Section 7 of the CGST Act
For the practitioner
This ruling clarifies that leasing a residential building to a third party for the purpose of running a commercial accommodation business (like a hostel or PG) does not qualify for the **residential dwelling exemption**. Practitioners should note that the Authority distinguishes between personal residential use and commercial use of property. It does not settle the ongoing litigation regarding similar exemptions in other jurisdictions, which are currently pending before the Supreme Court.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/48_goldie_ashokbhai_shah_compressed.pdf
Legibility of the scan, as read: high.
Prepared 14-10-2026.
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