Supreme Court Upholds GST Exemption for Residential Renting to Aggregators

Apex Court affirms High Court's stance on GST exemption for residential properties leased for hostel use, emphasizing purposive interpretation of tax laws.

In a significant ruling, the Supreme Court of India has upheld the Karnataka High Court's decision granting Goods and Services Tax (GST) exemption on the renting of residential properties for use as hostels by students and working professionals. The landmark judgment, delivered by a bench comprising Justices J.B. Pardiwala and K.V. Viswanathan, reinforces the principle of purposive interpretation of tax statutes, emphasizing that the legislative intent is to support residential use free of GST burdens.

The case revolved around the interpretation of Entry 13 of Notification No. 9/2017-Integrated Tax (Rate), which exempts GST on residential dwellings rented for use as a residence. The appellants, the State of Karnataka, challenged the High Court's verdict, arguing that the lessee, a commercial entity, did not use the property as a residence themselves, thus invalidating the exemption.

The Supreme Court, however, dismissed the appeal, ruling that the exemption applies as long as the residential dwelling is used for residential purposes, irrespective of whether the lessee personally resides there. The court held that the legislative intent behind the exemption is to alleviate the tax burden on residential accommodations, ensuring affordability for end users like students and working professionals.

The judgment further clarified that amendments to Entry 13 in 2022, which excluded exemptions for residential dwellings rented to registered persons, could not be applied retrospectively. The court emphasized that beneficial exemptions should be interpreted liberally once the qualifying conditions are met, ensuring that the intended beneficiaries, in this case, students and professionals, are not adversely affected.

This ruling is expected to have a significant impact on the rental market for residential properties, particularly in urban areas where the demand for hostel accommodations is high. It also sets a precedent for interpreting tax exemptions in a manner that aligns with the broader legislative purpose, rather than a narrow textual reading.

The Supreme Court's decision underscores the importance of purposive interpretation in tax law, aiming to achieve the legislature's objectives while ensuring that statutory benefits are not unduly withheld from deserving parties.

Bottom Line:

GST Exemption on Renting of Residential Dwelling - The exemption under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate) is applicable to renting of residential dwellings for use as residence. It does not mandate the lessee to use the property as a residence personally, and extends to cases where the lessee sub-leases the property for residential use by others.

Statutory provision(s): Goods and Services Tax Act, 2017, Notification No. 9/2017-Integrated Tax (Rate) Entry 13.

State of Karnataka v. Taghar Vasudeva Ambrish, (SC) : Law Finder Doc Id # 2817599