This change—applicable to accommodation services provided for a continuous period of at least 90 days, and if the cost involved is under ₹20,000 per person per month—was aimed at easing the financial burden on those seeking affordable accommodation. But implementing it has thrown up a number of practical challenges.

Lack of clarity on the scope of exemption

Accommodation services typically include additionally offered services such as food, laundry, housekeeping, and gym facilities. But how should the ₹20,000 threshold for this exemption should be assessed. Should it apply to the total package including the additional services? Or should each of these components be assessed separately and the exemption cover only the accommodation and not the additional services?

While the exemption aims to support students and professionals by making affordable accommodation GST-free, certain scenarios raise important questions.

For instance, if a landlord rents out an entire unit, say a 3-room property, to a single tenant and charges under ₹20,000 per room, does the exemption still apply?

The answer may lie in the nature of the arrangement. Since the entire premises is being rented to one person as a self-contained unit, rather than being offered as individual rooms to different occupants with shared services, it may not fall under the typical definition of "accommodation services". In such cases, the transaction could be seen more as a standard residential lease than a service-based accommodation.

Also read | When math mistakes cost more than money

But what if a landlord leases out a property to an operator, who then sublets it to students or professionals. If the landlord charges a monthly rent of under ₹20,000 per person on a per-room or per-bed basis, can the exemption still be claimed?

If the answer is negative then the GST paid on the rent becomes an added expense for the operator, which could eventually be passed on to the tenants, defeating the intent of the relief.

One could argue that what matters is the ultimate use of the property. If the end users are individuals such as students and professionals seeking affordable accommodation, then the exemption should ideally flow through all stages of the transaction.

The Karnataka High Court in a recent judgment observed that if a landlord rents out a property to an operator, who in turn uses it to accommodate students and working women, the transaction may still qualify for GST exemption given its end use as residential accommodation. 

However, the matter is under appeal before the Supreme Court, and several advance rulings on similar issues have offered conflicting interpretations. As a result, there is still a lack of clarity on how this exemption should be applied in a consistent manner.

Also read | My dogma on gold was unwise: Srikanth Meenakshi on lessons from a humbling year

Rationale behind the ₹20,000 exemption

Another point of ambiguity arises when accommodation services are provided by different entities. For instance, educational institutions providing accommodation may be exempt from GST, while similar services provided by third-party accommodation providers become taxable. 

This inconsistency raises concerns regarding uniformity in the application of the exemption as one of its key objectives is to benefit rural students moving to cities for education.

Several such aspects require examination. A clearer, well-defined policy would not only help businesses navigate the law with more certainty but also prevent confusion and ensure compliance with GST regulations.

The 2025 Budget failed to address these concerns. Hopefully, the upcoming GST council meeting will provide clarity that will enable the hospitality and rental industry to better understand how to apply the exemption and ensure uniformity across the sector.

Also read | Tune out the noise, stay with equity

Rohini Mukherjee is a partner at Lakshmikumaran & Sridharan Attorneys. Divya Bhardwajis principal associate, and Aashna Sehgal is an associate at the law firm.