I. Legislative and Jurisprudential Background
The taxation of rental income from immovable property has undergone a marked evolution from the service tax regime to the Goods and Services Tax (“GST”) framework. Under the erstwhile Finance Act, 1994, service tax was levied only on commercial renting, while renting of residential dwellings remained outside the tax net. This distinction was preserved through administrative guidance, particularly the CBIC Education Guide dated 20 June 2012, which clarified that “residential dwelling” refers to residential accommodation distinct from hotels, inns, guest houses, or other places meant for temporary stay.
The GST regime in India has been a landscape of evolving interpretations, particularly regarding real estate and rental income. With the advent of GST, renting of immovable property was subsumed within the definition of “supply of service”. However, recognising the social and economic implications of taxing residential accommodation, the Central Government issued Notification No. 9/2017–Integrated Tax (Rate) dated 28 June 2017 (“Notification No. 9/2017”) which is pari materia to Notification No. 12/2017–Central Tax (Rate) dated 28 June 2017 (“Notification 12/2017”), granting exemption to “services by way of renting of residential dwelling for use as residence” under Entry 13 of the Notification No. 09/2017 and under Entry 12 Notification No. 12/2017. The legislative intent was clear: the government did not wish to tax the basic human need for shelter. Housing, being a fundamental necessity, was to be kept out of the tax net to ensure affordability for the common man.
II. The Long-Standing GST conundrum
One of the most contentious issues in recent years has been the taxability of residential properties leased to commercial entities for use as hostels or Paying Guest (PG) accommodations. While the exemption was clear for direct landlord-tenant relationships (e.g., a family renting an apartment), confusion arose with the emergence of the “co-living” and “student housing” models. In these business models, property owners (landlords) lease their premises to an aggregator or operating company (lessee). This company then sub-leases the rooms to end-users (students, working professionals) for long-term stays. The debate centered on a fundamental question: does the involvement of a commercial intermediary change the “residential” character of the property?
Tax authorities began to view the transaction between the landlord and the operating company, as a commercial lease. They argued that because the lessee (the company) was not “residing” in the building but running a business, the exemption under Entry 12 of Notification No. 12/2017 should not apply. This interpretation threatened to make student housing significantly more expensive by adding an 18% tax cost to the supply chain. Divergent advance rulings and departmental positions on this issue led to sustained uncertainty as to whether such arrangements qualified for exemption.
III. Judicial Understanding of “Residence” and “Residential Dwelling”
Long before GST, Indian courts had consistently adopted a functional and purposive understanding of “residence”. In Kishore Chandra Singh v. Babu Ganesh Prasad Bhagat (AIR 1954 SC 316), the Supreme Court held that residence merely connotes a place where a person eats, sleeps, and ordinarily lives, irrespective of ownership. Similarly, in Jeewanti Pandey v. Kishan Chandra Pandey (AIR 1982 SC 3), the Court clarified that residence requires something more than a fleeting stay but does not necessitate permanence.
A crucial development came from the Bombay High Court in Bandu Ravji Nikam v. Acharyaratna Deshbushan Shikshan Prasark Mandal (2003 (3) Mah LJ 472), where it was categorically held that a student hostel is nothing but a house of residence. In this case, a landlord sought to evict a tenant on the grounds that running a student hostel amounted to a “non-residential” use of the property. The Court rejected the argument that recovery of charges converts hostel accommodation into commercial or non-residential use, emphasising that students use hostels for living, sleeping, studying, and day-to-day residence.
In V.L. Kashyap v. R.P. Puri (1976 DLT 369), The Delhi High Court distinguished a “dwelling house” from commercial premises and held that a dwelling house is synonymous with residential accommodation, distinct from an office, warehouse, or shop. United Kingdom House of Lords in Uratemp Ventures Limited v. Collins (2001) 3 WLR 806, held that even a single room can be interpreted as a “dwelling house”.
These precedents laid the foundation for a residence-centric rather than ownership-centric or profit-centric analysis.
IV. Divergent Interpretations of ‘Renting of residential dwelling for use as residence’
The scope of exemption for “renting of residential dwelling for use as residence” under Entry 12 of Notification No. 12/2017, and the corresponding Notification No. 9/2017, witnessed sharply divergent interpretations at the level of Authorities for Advance Ruling (“AARs”) and Appellate Authorities for Advance Ruling (“AAARs”). These rulings reveal the fault lines in GST administration that ultimately necessitated intervention by constitutional courts.
One strand of rulings adopted a strict, supply-centric and recipient-centric interpretation, insisting that the exemption is available only where the immediate recipient of the renting service uses the premises as its own residence and not in the course or furtherance of business.
In In re: M/s Goldie Ashokbhai Shah [AAR Gujarat, Order dated 19 November 2025], the AAR held that where a registered person rents residential property to another registered person, the exemption is unavailable unless the latter uses the premises in his personal capacity as a residence. The AAR placed substantial reliance on the amendments introduced vide Notification No. 04/2022–CT (Rate) dated 13 July 2022 (“Notification No. 04/2022”), which inserted the words “except where the residential dwelling is rented to a registered person” against Entry 12 of Notification No. 12/2017. According to the AAR, these amendments clarified the legislative intent that exemption is meant only for personal residential use and not for commercial exploitation of residential property, even if such exploitation ultimately results in residential accommodation for students or working professionals. Since the lessee in that case used the premises for providing accommodation as part of a commercial activity, the exemption was denied.
A similar restrictive approach was adopted by the Tamil Nadu AAR in In re: Tvl. Cindrella’s Castle [Order dated 4 September 2023]. The AAR held that a property subdivided and let out on a per-bed basis along with bundled ancillary services constitutes a business of supplying accommodation services rather than renting of a residential dwelling. Relying on the CBIC Education Guide dated 20 June 2012, the AAR reasoned that hostels, paying guest accommodations, and similar arrangements are closer to hotels or lodges meant for temporary stay. It further emphasised that exemption notifications must be strictly construed and that unless the twin conditions of “residential dwelling” and “use as residence” are inseparably satisfied, exemption cannot be granted. On this reasoning, hostel accommodation was held to be neither a residential dwelling nor rented for use as residence.
The Andhra Pradesh Appellate Authority for Advance Ruling echoed this reasoning in In re: M/s Aluri Krishna Prasad [2023 (1) TMI 432 – AAAR AP]. In that case, the premises were leased to a company, which in turn sub-leased them to an educational society running a hostel with mess facilities. The AAAR characterised the arrangement as a “bundled service” akin to hotel or guest house accommodation, noting that supply of food and other amenities distinguishes such premises from a place of residence in common understanding. Crucially, the AAAR held that GST being a supply-based tax, the eligibility for exemption must be tested strictly with reference to the first supply between lessor and lessee, and not by looking at downstream or ultimate use by students. Since the lessee itself did not reside in the premises, exemption was denied.
Likewise, the Karnataka AAR in In re: M/s Bishops Weed Food Crafts Pvt. Ltd. [Order dated 24 March 2021] rejected exemption for leasing of residential units to a business entity for further sub-leasing. The AAR held that where the immediate transaction is in the course or furtherance of business, the condition of “use as residence” is not satisfied, irrespective of the eventual residential use by sub-tenants. Emphasising that GST is transaction-based, the AAR concluded that exemption under Entry 12 of Notification 12/2017 does not extend to commercial sub-letting models.
Contrastingly, a significant view was expressed by the West Bengal AAR in In re: M/s Borbheta Estate Pvt. Ltd. [Order dated 27 June 2019]. In that case, residential flats were let out both to individuals and to a company for use by its employees as residences. Departing from the recipient-centric approach, the AAR held that the decisive test is whether the dwelling is in fact used as a residence. Since all units were admittedly used for residential purposes, exemption was granted irrespective of whether the lessee was an individual or a corporate entity or whether it was sublet. This ruling implicitly recognised that the exemption is use-oriented rather than person-oriented, focusing on the nature of occupation rather than the legal character of the lessee.
These advance rulings demonstrate the deep ambiguity surrounding Entry 12 of Notification 12/2017, prior to judicial clarification. While several AARs and AAARs treated hostel and student accommodation as commercial exploitation of residential property and confined the exemption strictly to personal use by the lessee, others acknowledged that residential character is not lost merely because the premises are leased through an intermediary or used by employees or students.
It is against this fractured administrative backdrop, marked by inconsistent rulings, retrospective application of subsequent amendments, and a rigid supply-centric approach, that demanded intervention by the Apex Court to examine whether such restrictive interpretations were consistent with the language, purpose, and legislative intent of the exemption itself.
V. Genesis of the Dispute under GST
Against this legal backdrop, Taghar Vasudeva Ambrish, (“the Respondent No. 1”) was a co-owner of a residential property situated in Bengaluru, comprising a four-storied building with 42 rooms, terrace and common areas. On 21 June 2019, the Respondent No. 1, along with other co-owners, executed a lease deed in favour of M/s DTwelve Spaces Private Limited (“the Lessee”), whereby the property was leased for the purpose of being operated as a hostel providing long-term accommodation to students and working professionals, with the duration of stay ranging from three months to twelve months.
In order to seek clarity on the taxability of the rent received from the Lessee, the Respondent No. 1 filed an application for advance ruling under Section 97 of the Integrated Goods and Services Tax Act, 2017 (“the IGST Act”), claiming exemption under Entry 13 of Notification No. 9/2017, which exempts services by way of renting of residential dwelling for use as residence. AAR Karnataka, vide ruling dated 23 March 2020, held that the exemption was not available, on the ground that the Lessee, being a company, was not itself using the premises as a residence, and accordingly directed that GST be charged on the lease rentals. Aggrieved by the ruling of the AAR, the Respondent No. 1 preferred an appeal under Section 100 of the IGST Act before the AAAR Karnataka. The AAAR, vide order dated 31 August 2020, affirmed the ruling of the AAR and held that the subject property was in the nature of a hostel and akin to sociable accommodation rather than residential accommodation, and that the exemption under Entry 13 of Notification No. 9/2017 was available only where the residential dwelling is used as a residence by the lessee itself. Consequently, the appeal was dismissed.
These rulings epitomised the core ambiguity: whether the exemption hinges on who uses the premises (lessee versus occupants) or how the premises are ultimately used.
VI. High Court Intervention and Competing Interpretations
Challenging the order of the AAAR Karnataka, the Respondent No. 1 approached the High Court of Karnataka by filing Writ Petition No. 14891 of 2020. The Karnataka High Court, in Taghar Vasudeva Ambrish v. Appellate AAR [(2022) 100 GSTR 265], allowed the writ petition and overturned the AAAR’s decision. The Court held that leasing of residential premises as hostel accommodation to students and working professionals constituted renting of residential dwelling for use as residence, and that there was no requirement under the Notification No. 9/2017 that the lessee must itself reside in the premises.
Aggrieved by the judgment of the High Court, the State of Karnataka and the tax authorities preferred Civil Appeal Nos. 7846 and 7847 of 2023 before the Hon’ble Supreme Court of India, assailing the interpretation adopted by the High Court and contending that the exemption under Entry 13 of Notification No. 9/2017 was not applicable to the lease transaction in question.
VII. The Core Issues and Ambiguity before the Supreme Court
In State of Karnataka v. Taghar Vasudeva Ambrish (Civil Appeal Nos. 7846–7847 of 2023, decided on 4 December 2025), the Supreme Court dismissed the appeals and upheld the High Court’s ruling and decisively settled the law. The Supreme Court had to resolve four critical questions of law that had created ambiguity across the industry:
- Whether the hostel building leased by the Respondent qualifies as a “residential dwelling” within the meaning of Entry 13 of Notification No. 9/2017?
- Whether the exemption under Entry 13 of Notification No. 9/2017 for “services by way of renting of residential dwelling for use as residence” mandates that the lessee itself must use the premises as a residence, or whether such requirement stands satisfied where the premises are used for residential purposes by sub-lessees, namely students and working professionals?
- Whether Entry 13 of Notification No. 9/2017, being a beneficial and activity-specific exemption, warrants a purposive interpretation, and how the principles governing strict construction at the threshold and liberal construction upon applicability of exemption notifications are to be applied?
- Whether the amendments to Entry 13 of Notification No. 9/2017 introduced with effect from 18 July 2022 and 1 January 2023 have any bearing on, or can be applied retrospectively to govern, the availability of exemption for the period 2019–2022?
VIII. The Supreme Court’s Verdict and Reasoning
The Division Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan dismissed the Revenue’s appeals, offering a comprehensive analysis that favoured a “purposive interpretation” of the law.
A. Hostel is a “Residential Dwelling”
The Court answered in the affirmative, holding that the subject property qualifies as a “residential dwelling.”
- Common Parlance Test: Noting that the GST Acts do not define “residential dwelling,” the Court held that the term must be interpreted according to its popular sense and common parlance.
- Distinction from Temporary Lodging: Reliance was placed on the CBIC Education Guide dated 20 June 2012 under the erstwhile Finance Act, 1994, which defines “residential dwelling” as residential accommodation distinct from hotels, inns, guest houses or other places meant for temporary stay. The Court observed that the occupants in this case resided for extended durations (averaging eight months), which severed any equivalence with commercial lodging establishments. Relied on dictionary meanings of the expressions “residence” and “dwelling” as set out in the Concise Oxford English Dictionary (2013 Edition) and Black’s Law Dictionary (6th Edition), to hold that any place used for habitation, sleeping and ordinary living qualifies as a residential dwelling in common parlance.
- Affirmation of Precedents: The Court expressly relied on the principles established in Bandu Ravji Nikam, L. Kashyap and Uratemp Ventures (supra), to affirm that a hostel is inherently a house of residence. The Revenue’s contention that the building’s physical characteristics, such as having 42 rooms with attached washrooms, rendered it commercial was categorically rejected.
B. The lessee need not the one residing
The Court ruled that Entry 13 of Notification No. 9/2017 does not require the lessee itself to use the premises as a residence.
- Ultimate Use is Determinative: It was held that the exemption under Entry 13 of Notification No. 9/2017 does not require that the lessee itself must use the premises as a residence. It is sufficient if the residential dwelling is ultimately used for residential purposes, even where such use is facilitated through sub-leasing arrangements.
- The Court observed that Entry 13 of Notification No. 9/2017 does not prescribe any condition mandating personal residential use by the service recipient, and importing such a requirement would amount to rewriting the exemption notification, which is impermissible. Sub-leasing does not sever the residential character of the property, especially when the ultimate use remains residential.
C. Purposive Interpretation and Activity-Specific Exemption
The Court declared that Entry 13 of Notification No. 9/2017 is an activity-specific exemption (focused on the nature of renting) rather than a person-specific exemption (focused on the status of the lessee).
- Rules of Construction: Citing the principles laid down in Union of India v. Wood Papers Ltd. [(1990) 4 SCC 256] and Collector of Central Excise v. Parle Exports (P) Ltd. [(1989) 1 SCC 345], the Court reiterated that while exemption provisions must be construed strictly at the threshold of applicability, once the exemption is found applicable, it must be given a liberal and purposive construction so as to advance the legislative intent.
- Purposive Interpretation: Court held that entry 13 of Notification No. 9/2017 be given a purposive interpretation to advance its legislative intent of exempting residential accommodation used as a residence from GST. Relied on the principles enunciated in Shailesh Dhairyavan v. Mohan Balkrishna Lulla [(2016) 3 SCC 619] and Purposive Interpretation in Law by Aharan Barak, the Court noted that Entry 13 of Notification No. 9/2017 is designed to ensure that residential accommodation used as a residence does not suffer GST. A narrow or literal interpretation of Entry 13 of Notification No. 9/2017 would defeat the legislative object of exempting residential accommodation from GST. Levy of GST on the lease transaction in the present case would inevitably be passed on to students and working professionals, thereby frustrating the purpose underlying the exemption.
- Activity Specific Exemption– The Court Ruled that the exemption under Entry 13 of Notification No. 9/2017 is an activity-specific exemption and not a person-specific exemption. The Court contrasted Entry 13 of Notification No. 9/2017 with other exemptions under GST, which are expressly person-centric, and held that the focus of Entry 13 of Notification No. 9/2017 is solely on the nature of the service, namely renting of residential dwelling for use as residence, irrespective of the business model of the lessee or the presence of sub-lessees.
D. Prospective Application
- The Hon’ble Supreme Court held that the amendments to Entry 13 of Notification No. 9/2017 introduced with effect from 18 July 2022, excluding exemption where residential dwellings are rented to registered persons, and the Explanation inserted with effect from 1 January 2023, are prospective in nature. The Court categorically held that the Revenue cannot seek to apply the amended provisions retrospectively to deny exemption for the period 2019–2022.
- The Court further observed that the attempt of the Revenue to rely upon subsequent amendments to reinterpret or restrict the scope of Entry 13 of Notification No. 9/2017 for earlier periods is legally impermissible and would amount to giving retrospective effect to a substantive amendment, contrary to settled principles of tax jurisprudence.
IX. Current GST Jurisprudence on Rental Income from Residential Property
While the Taghar Vasudeva Ambrish (supra) judgment clears the air for the period prior to July 2022, it is crucial to understand the current GST landscape for rental income, which has undergone significant amendments.
W.e.f. 01 July 2017 till 17 July 2022, Entry No. 12 of Notification 12/2017, read as follows: –
| Sl. No. | Chapter, Section, Heading, Group or Service Code (Tariff) | Description of Services | Rate (per cent) | Condition |
| (1) | (2) | (3) | (4) | (5) |
| 12 | Heading 9963 or Heading 9972 | Services by way of renting of residential dwelling for use as residence | Nil | Nil |
(Emphasis Supplied)
Thereafter, Entry No. 12 of Notification 12/2017 has been amended through a series of Notifications, and the amended Entry No. 12 as on date is as follows: –
| Sl. No. | Chapter, Section, Heading, Service Group or Code (Tariff) | Description of Services | Rate (per cent) | Condition |
| (1) | (2) | (3) | (4) | (5) |
| 12 | Heading 9972 | Services by way of renting of residential dwelling for use as residence [1][except where the residential dwelling is rented to a registered person]
[2][[3][Explanation 1]. – For the purpose of exemption under this entry, this entry shall cover services by way of renting of residential dwelling to a registered person where, – (i) the registered person is proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence; and (ii) such renting is on his own account and not that of the proprietorship concern.] [4][Explanation 2.- Nothing contained in this entry shall apply to- (a) accommodation services for students in student residences; (b) accommodation services provided by Hostels, Camps, Paying Guest accommodations and the like.] |
Nil | Nil |
| [5][12A | Heading 9963 | Supply of accommodation services having value of supply less than or equal to twenty thousand rupees per person per month provided that the accommodation service is supplied for a minimum continuous period of ninety days. | Nil | Nil] |
Further, the ‘Service by way of renting of residential dwelling to a registered person’ has been made taxable @18% under Reverse Charge Mechanism (“RCM”) vide Entry No. 5AA of the Notification No. 13/2017- Central Tax (Rate) dated 28 June 2017 (“RCM Notification”). The relevant Entry No. 5AA of the RCM Notification is reproduced below:
| Sl. No. | Chapter, Section, Heading, Group or Service Code (Tariff) | Supplier of service | Recipient of service |
| (1) | (2) | (3) | (4) |
| [6][5AA | Service by way of renting of residential dwelling to a registered person. | Any person | Any registered person.] |
(Emphasis Supplied)
Therefore, the erstwhile Entry No. 12 of Notification No. 12/2017, containing Headings 9963 and 9972 (before amendment), which originally granted an exemption to “services by way of renting of residential dwelling for use as residence”, has now been consciously split into two distinct entries, namely Entry 12 (Heading 9972) and Entry 12A (Heading 9963) of Notification No. 12/2017. This restructuring segregated residential renting from supply of accommodation services, thereby narrowing down the scope of exemption rather than providing a clarification, and thus segregation will ultimately give rise to more ambiguities and create undue hardships for the taxpayers.
Under the restructured framework, Entry 12 of Notification No. 12/2017, is confined to supply of services by way of renting of residential dwelling for use as residence, except where the residential dwelling is rented to a registered person. This marks a substantive change from the earlier regime, as the exemption is now withdrawn where the immediate recipient of the supply of service by way of renting of residential dwelling for use as residence is a registered person. However, recognising potential hardship, Explanation 1 to Entry 12 of Notification No. 12/2017 preserves the exemption for a registered person, notwithstanding their GST registration, provided the dwelling is rented to them in their personal capacity for use as their own residence and not in connection with their proprietorship concern.
At the same time, Explanation 2 to Entry 12 of Notification No. 12/2017 expressly excludes supply of accommodation services for student’s residences, hostels, camps, paying guest accommodations, and similar arrangements from the ambit of Entry 12 of Notification No. 12/2017 altogether. By statutorily excluding student residences, hostels, camps, paying guest accommodations, and similar arrangements from Entry 12 of Notification No. 12/2017, it seems that the legislature has intentionally removed such supply of accommodation services from the ambit of “residential dwelling for use as residence” under Entry 12 of Notification No. 12/2017.
Significantly, the exclusion of supply of accommodation services for hostels and PG accommodations from Entry 12 of Notification No. 12/2017 is not accompanied by a complete withdrawal of exemption. Instead, such services have been carved out into a separate exemption under Entry 12A of Notification No. 12/2017 under Heading 9963, subject to specific conditions. Entry 12A of Notification No. 12/2017, exempts supply of accommodation services where the value of supply does not exceed Rs. 20,000 per person per month and the accommodation is provided for a minimum continuous period of ninety days.
This legislative structuring indicates a deliberate shift from a use-based test to a monetary-threshold-based test for supply of accommodation services, including student residences, hostels, camps, paying guest accommodations, and similar arrangements. By introducing a monetary ceiling and a minimum stay requirement, the legislature appears to have restricted the exemption only limited to long-term, low-value accommodation, while excluding higher-value or short-term accommodation services from the exemption purely on monetary consideration rather than residential use. Entry 12A of Notification No. 12/2017, effectively discards the importance of end-use of the residential property by taxing bona fide residential occupation solely on monetary considerations and duration of stay.
Furthermore, the supply of services by way of renting of residential dwelling for use as residence to a registered person, notwithstanding exemption granted under Entry No. 12 of Notification No. 12/2017, has been moved to the RCM Notification under Entry 5AA of the RCM Notification, where the liability to pay GST has been shifted on to the registered recipient. This shift, however, has not translated into any meaningful simplification. On the contrary, it has resulted in an increased compliance and tax burden, particularly for registered persons. While unregistered recipients continue to enjoy exemption for identical residential use, registered person, registered under GST in a bona fide belief, are burdened with tax liability merely on account of their registration status. The RCM Notification, in the absence of any corresponding clarification or rationalisation, effectively places liability on registered tax payer rather than addressing the nature of use of the residential property, thereby introducing an uneven and compliance-intensive regime.
X. Conclusion and Industry Impact
The Supreme Court’s ruling in Taghar Vasudeva Ambrish (supra) finally resolved the long-standing confusion surrounding the scope of exemption under Entry 13 of Notification No. 9/2017, which had arisen due to inconsistent advance rulings and departmental interpretations. The reasoning adopted by the Supreme Court further affirmed the Madras High Court’s decision in Mrs. M. Divya & Ors. [2025 (11) TMI 848 (Mad.)], which held that hostel rooms used as residential sleeping apartments with typical residential facilities cannot be classified as commercial merely because they are let out or generate income.
The judgment ensures certainty for taxpayers for the pre-amendment period, neutralises contrary AAR and AAAR rulings, and reinforces purposive interpretation as the governing approach in beneficial tax exemptions. Importantly, it prevents the cascading of GST costs onto students and working professionals, thereby preserving the legislative intent underlying the exemption.
While the Supreme Court conclusively settled the law for the period prior to 18 July 2022, the subsequent amendments to Entry No. 12 of Notification No. 12/2017 and the introduction of Entry No. 12A in Notification No. 12/2017 and Entry No. 5AA in Notification No. 13/2017 have effectively re-introduced the very mischief that the judgment sought to cure. By making exemption contingent upon the registration status of the recipient and by taxing residential renting on a monetary basis, the post-amendment framework has revived a person-centric and monetary driven approach, affirming the restrictive interpretations earlier adopted by advance ruling authorities. These amendments have diluted the exemption by importing conditions not contemplated under the original notification, despite the Supreme Court having held that exemption under Entry 12 of Notification No. 12/2017 is activity-based and governed by end-use.
Although the July 2022 amendment has prospectively altered the legal position, the Supreme Court’s decision, while clarificatory in nature, being held to operate prospectively has itself given rise to significant forward-looking challenges. The Apex Court should have taken note of the amendments and clarify the ambiguities that are still unresolved. The legislative response effectively negates the core ratio of Taghar Vasudeva Ambrish (supra) by abandoning the residential end-use test in favour of a regime that differentiates between registered and unregistered persons. As a result, registered persons, registered in a bona fide belief, are subjected to tax liability for identical residential use, while unregistered persons continue to enjoy exemption. This asymmetry not only creates unnecessary compliance burdens for registered persons but also risks incentivising non-registration, thereby undermining tax neutrality and potentially encouraging tax avoidance.
The introduction of Entry 12A of Notification No. 12/2017 further compounds these concerns. The Rs. 20,000 monetary threshold and the ninety-day condition appear to be articulated without any legislative rationale. Both Entry 12 and Entry 12A of Notification No. 12/2017 now operate primarily on monetary and recipient-based parameters, rather than on the residential character and end use of the service. By treating supply of accommodation services as a distinct taxable activity beyond a perceived affordability limit, Entry 12A of Notification No. 12/2017 collapses the well-recognised distinction between residential use and commercial lodging. This shift effectively dilutes the end-use test affirmed by the Supreme Court in Taghar Vasudeva Ambrish (supra), by rendering genuine long-term residential accommodation taxable solely on the basis of price.
Whether this segregation can be reconciled with settled jurisprudence that prioritises residential end-use over form or value remains an open and contestable issue.
Far from simplifying the law, the post-judgment amendments to Entry 12 of Notification No. 12/2017, introduced without a clearly articulated legislative intent, have generated fresh ambiguities and compliance challenges for taxpayers, even as the Supreme Court’s ruling has brought much-needed clarity only for the past period.
1 Inserted vide Notification No. 04/2022 -Central Tax (Rate) dated 13-07-2022 w.e.f. 18-07-2022
2 Inserted vide Notification No. 15/2022 -Central Tax (Rate) dated 30-12-2022 w.e.f. 01-01-2023
3 Re-numbered vide Notification No. 04/2024- Central Tax (Rate) dated 12-07-2024 w.e.f. 15-07-2024 before it was read as, “Explanation”
4 Inserted vide Notification No. 04/2024- Central Tax (Rate) dated 12-07-2024 w.e.f. 15-07-2024
5 Inserted vide Notification No. 04/2024-Central Tax (Rate) dated 12-07-2024 w.e.f. 15-07-2024
6 Inserted vide Notification No. 05/2022-Central Tax (Rate) dated 13-07-2022 w.e.f. 18-07-2022
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