Hostel Leasing as “Residential Dwelling” and Activity‑Specific GST Exemption: Purposive Interpretation of Entry 13, Notification 9/2017 (IGST)

1. Introduction

The Supreme Court of India in The State of Karnataka & Anr. v. Taghar Vasudeva Ambrish & Anr., Civil Appeal Nos. 7846–7847 of 2023 (decided on 4 December 2025, 2025 INSC 1380), has delivered a significant ruling on the scope of Goods and Services Tax (GST) exemption for renting of residential premises.

The core question was whether the exemption under Entry 13 of Notification No. 9/2017–Integrated Tax (Rate), dated 28.06.2017 (“Exemption Notification”)—covering “services by way of renting of residential dwelling for use as residence”— applies where:

A residential building is leased by an individual owner (the respondent) to a private company (M/s DTwelve Spaces Pvt. Ltd.) which
in turn runs the premises as a hostel/PG for students and working professionals for relatively long‑term stays (3–12 months).

The Karnataka Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR) had denied exemption on two main grounds:

the lessee was a company not “itself” using the property as a residence, and
the property, being a hostel, was allegedly more akin to “sociable accommodation” like a hotel/guest house than to a “residential dwelling”.

The High Court of Karnataka set aside these rulings and granted the benefit of exemption. The State appealed to the Supreme Court.

The decision is important for:

the growing co‑living/hostel/PG segment operated by aggregators and operators,
the interpretation of the term “residential dwelling” under GST,
the line between “activity‑specific” and “person‑specific” exemptions, and
the broader approach to purposive and beneficial interpretation of tax exemptions.

2. Summary of the Judgment

2.1. Issues before the Court

The Supreme Court focused on a single operative question:

Whether GST at 18% was payable on the rent received by the respondent from M/s DTwelve Spaces Pvt. Ltd. between 2019 and 2022, or whether the transaction was exempt under Entry 13 of Notification 9/2017?

This boiled down to three cumulative conditions embedded in Entry 13:

There must be a supply of service of renting;
The renting must be in respect of a “residential dwelling”; and
Such residential dwelling must be “for use as residence”.

2.2. Key Holdings

The Supreme Court dismissed the State’s appeals and upheld the High Court’s judgment. Its principal holdings are:

The subject property is a “residential dwelling”.
A hostel building used for long‑term accommodation of students and working women—classified as residential in municipal records and designed for residence— qualifies as a “residential dwelling”. It is distinct from hotels, motels, inns, guest houses or similar establishments meant for short, temporary stays.
The third condition (“for use as residence”) was satisfied.
The exemption does not require that the immediate lessee (M/s DTwelve) personally live in the premises. It is sufficient that the premises are ultimately used for residential purposes, i.e. as a home/sleeping place for students and working professionals as sub‑lessees. Importing a requirement of “use by the lessee itself” would amount to impermissibly rewriting Entry 13.
Entry 13 provides an “activity‑specific” exemption, not a “person‑specific” one.
The exemption attaches to the activity of renting a residential dwelling for use as residence, irrespective of whether the lessee is an individual or a commercial entity, and irrespective of the lessee’s profit motive.
Purposive and beneficial interpretation applies once the exemption’s entry conditions are met.
The Court re‑affirmed that while exemption entries are construed strictly to determine whether they apply at all, once the assessee is found to fall within the terms of the exemption, the provision must be given a liberal and beneficial construction, especially where it has a social or beneficial objective.
No retrospective application of the 2022 amendment to Entry 13.
From 18.07.2022, Entry 13 was amended to withdraw exemption where a residential dwelling is rented to a registered person, with a limited carve‑out added from 01.01.2023 for proprietors renting in their personal capacity. The Court held that these later changes cannot be retroactively used to deny exemption for the earlier period (2019–2022).

Consequently, for the period June 2019 to June 2022, the lease of the property by the respondent to M/s DTwelve Spaces Pvt. Ltd. was held exempt from IGST under Entry 13 of Notification 9/2017.

3. Detailed Analysis

3.1. Factual and Statutory Background

3.1.1. The Lease Arrangement

The respondent was co‑owner of a 4‑storeyed residential building in Bengaluru with 42 rooms.
By a lease deed dated 21.06.2019, the property was leased to M/s DTwelve Spaces Pvt. Ltd. (called “lessee”).
DTwelve’s business model: running, managing and operating residential premises and sub‑leasing/licensing them to individuals (students/working professionals) for long‑term stays (3–12 months).
The lease deed expressly contemplated:
- that the lessee is engaged in such business;
- that the purpose of the lease is to enable such long‑stay accommodation; and
- that DTwelve is authorised to sub‑lease/sub‑license the property to such end‑users.

3.1.2. GST Regime and Entry 13 of Notification 9/2017

Under the earlier Service Tax regime:

Only renting of commercial properties attracted Service Tax;
Renting of residential properties was exempt, even if used commercially.

With GST, “renting of immovable property” is a taxable supply of service under Section 7 (supply) and Section 9 (levy). However, the Central Government issued Notification No. 9/2017–Integrated Tax (Rate), 28.06.2017, exempting specified inter‑State services. Entry 13 granted an unconditional exemption to:

“services by way of renting of residential dwelling for use as residence”.

Thus:

Renting a residential dwelling for residential use was exempt;
Renting a residential dwelling for commercial purposes attracted GST;
Renting non‑residential/commercial premises remained taxable.

3.1.3. AAR and AAAR Rulings

The respondent sought an advance ruling on whether his leasing of the premises to DTwelve qualified for Entry 13. The AAR and then the AAAR denied exemption, holding:

The property was a “hostel building” akin to “sociable accommodation” (like hotels/guest houses), not a “residential dwelling” as commonly understood.
The exemption under Entry 13 applied only if the residential dwelling was used as residence by the person who took it on rent/lease (i.e., the immediate lessee).
Since DTwelve was a company and did not itself reside in the premises but sub‑leased to others, the transaction failed the “for use as residence” limb.

The High Court of Karnataka reversed these findings and granted exemption. The State appealed, leading to the present judgment.

3.2. Precedents and Authorities Cited

3.2.1. Education Guide under the Finance Act, 1994

Under the Service Tax regime, the CBIC issued an “Education Guide” (20.06.2012) explaining the scope of “residential dwelling” for the then applicable negative list. Para 4.13.1 stated:

“The phrase ‘residential dwelling’ has not been defined in the Act. It has therefore to be interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp-site, lodge, houseboat, or like places meant for temporary stay.”

The revenue relied on this to argue that the 42‑room hostel building was akin to excluded establishments and thus not a “residential dwelling”.

The Court accepted that trade parlance and this interpretive guide are relevant, but concluded that long‑stay hostels for students/working professionals, used as their residence, are not of the same nature as hotels, inns or guest houses intended for temporary stays.

3.2.2. Smt. V.L. Kashyap v. R.P. Puri (Delhi High Court)

In 12 (1976) DLT 369, the Delhi High Court interpreted “dwelling house” as:

“synonymous with residential accommodation as distinct from a house of business, warehouse, office, shop, commercial or business premises.”

This reinforced that “dwelling house”/“residential dwelling” denotes premises meant for living (eating, sleeping, residence) as opposed to commercial use.

3.2.3. Bandu Ravji Nikam v. Acharyaratna Deshbushan Shikshan Prasarak Mandal (Bombay High Court)

Reported in 2003 (3) Mah LJ 472, this decision is centrally important. The issue there was whether use of premises as a students’ hostel amounted to “non‑residential use” under the Bombay Rent Control Act.

The Court held:

A “hostel” is “a house of residence or lodging for students”.
Merely charging fees does not convert such use into “commercial” or “non‑residential” use.
There is a “perceptible difference” between hotels/lodging houses and students’ hostels, even though both involve paid accommodation.
The primary use of students’ hostel is for sleeping, eating, studying—i.e. residence— even if on a temporary, academic‑year basis.

The Supreme Court expressly relied on this distinction to classify the respondent’s premises, used as a hostel for students and working women, as a residential use rather than a commercial one.

3.2.4. Kishore Chandra Singh Deo v. Babu Ganesh Prasad Bhagat (Supreme Court)

Reported in AIR 1954 SC 316, this case was cited (earlier in Bandu Ravji, and now again by the High Court and accepted by the Supreme Court) for the proposition that:

“Residence only connotes that a person eats, drinks and sleeps at that place and it is not necessary that he should own it.”

The concept of “residence” is functional (how the premises are used), not dependent on ownership or formal title.

3.2.5. Government of Kerala v. Mother Superior Adoration Convent (Supreme Court)

Reported in (2021) 5 SCC 602, this judgment addressed exemption under Section 3(1)(b) of the Kerala Building Tax Act, 1975, where buildings “principally” used for religious/charitable/educational purposes were exempt.

Key aspects:

The Court distinguished between:
- general tax exemptions, and
- beneficial exemptions (serving social/charitable purposes), which should be interpreted in favour of the beneficiary in case of ambiguity.
It adopted a dominant purpose test because the statute used the word “principally”.
Residential accommodations for nuns and hostel accommodations attached to institutions were held exempt where integrally connected to religious/educational activity.

In the present case, the revenue argued Mother Superior was inapplicable because the text of Entry 13 contains no phrase like “principally” or explicit reference to charitable purposes. The Supreme Court agreed that the specific dominant‑purpose test of Mother Superior does not apply here, but endorsed its broader holding: where the exemption has a beneficial purpose (here, relieving residential rents), ambiguities must be resolved in favour of the beneficiary.

3.2.6. Union Of India v. Wood Papers Ltd. (Supreme Court)

Reported in (1990) 4 SCC 256, this is a classic authority on interpreting exemption notifications:

At the threshold stage (“does the assessee fall within the exemption at all?”), the provision must be construed strictly and against the assessee.
Once it is clear that the assessee does fall within the exemption, the provision is to be given a liberal and purposive construction to ensure that the full benefit is not whittled down.

The Supreme Court applied this two‑stage approach to Entry 13:

On a strict reading, all three limbs—(i) renting, (ii) residential dwelling, (iii) for use as residence—were found satisfied;
Thereafter, a liberal/purposive approach favoured treating both lessee and sub‑lessees as beneficiaries of the exemption and avoided adding extra words (“by the lessee itself”) into the entry.

3.2.7. Collector of Central Excise v. Parle Exports (P) Ltd. (Supreme Court)

Reported in (1989) 1 SCC 345, this case reiterated that courts must not extend an exemption’s scope beyond its language at the applicability stage. Once applicability is shown, the exemption must be allowed its full beneficial play.

The present judgment cites Parle Exports to underscore:

No “creative extension” of the exemption to items not contemplated by the legislature;
But equally, no artificial narrowing of an exemption that the assessee clearly falls within.

3.3. The Court’s Legal Reasoning

3.3.1. Is the Premises a “Residential Dwelling”?

The Court undertook a multi‑pronged analysis:

Trade parlance and Education Guide
It acknowledged the 2012 Education Guide definition—residential dwelling is “any residential accommodation, but does not include” hotels, motels, inns, guest houses, campsites, lodges, houseboats or similar places meant for temporary stay.
Common parlance & dictionary meaning
Referring to the Concise Oxford Dictionary and Black’s Law Dictionary, the Court noted:
- “Residence” denotes a place where one lives, eats, sleeps—one’s home.
- “Dwelling” means a house or structure in which people live; a place of habitation.
It summarised the common parlance understanding:
Any building or part of a building (other than offices/factories) used or intended to be used as a home, residence or sleeping place by one or more persons living together as a household.
Case law
The Court used V.L. Kashyap and Bandu Ravji Nikam to emphasise:
- “Dwelling house” is the antithesis of commercial or business premises.
- A students’ hostel is a residential use: it is a “house of residence or lodging for students”.
- Charging fees for hostel accommodation does not turn it into “commercial/non‑residential” use in the sense of rent‑control or similar laws.
Nature and use of the particular property
The Court considered:
- Municipal records (Khatha Extract, layout plans) treating the plot as residential;
- The actual use: long‑term accommodation for students and working women, with average stays of about eight months;
- The structural features: 42 rooms with attached bathrooms in a residential building layout.
It rejected the State’s argument that the mere number/layout of rooms made it comparable to a hotel/guest house.

From these factors, the Court held that the property clearly qualifies as a “residential dwelling”.

3.3.2. “For Use as Residence” – Must the Lessee Itself Reside?

This was the crux of the dispute.

The State contended:

GST is supply‑specific and the exemption is supply‑centric. The relevant “supply” is the lease from owner to DTwelve, not the downstream sub‑leases to students.
Therefore, the “use as residence” condition must be tested only in relation to the immediate lessee (DTwelve), which does not itself reside in the property.
Allowing the assessee to rely on sub‑lessee use effectively imports a different transaction (the second leg) into the first supply, which is impermissible.

The Supreme Court disagreed on several grounds:

Language of Entry 13 contains no “lessee itself” requirement
The Court stressed that Entry 13 exempts:
“services by way of renting of residential dwelling for use as residence”.
It does not say “for use as residence by the lessee”. Reading such a condition into the text would amount to rewriting the notification.
Concept of lease and sub‑lease
The Court noted that what is a lease between owner and tenant is a sub‑lease between tenant and sub‑tenant. Both are leases of immovable property. It is artificial to treat the downstream residential use as irrelevant when the entire structure of the initial lease contemplates and facilitates that residential use.
Purposive interpretation and legislative intent
Applying purposive interpretation, the Court asked:
- What social/economic purpose does Entry 13 serve?
- Is it to relieve residential rental use from GST, or only when the lessee personally resides?
The Court concluded that:
- The legislative intent is to ensure that premises used as residences do not bear 18% GST burden.
- That objective does not depend on whether the residential user is the immediate lessee or a sub‑lessee; what matters is that the ultimate use is residential.
- If GST is levied at 18% between owner and DTwelve, the tax cost will be passed on to students/working professionals, directly frustrating the exemption’s purpose.
Beneficial exemption & Wood Papers doctrine
On a strict reading:
- There is a renting service;
- It is of a residential dwelling; and
- The property is in fact used as a residence (even if by sub‑lessees).
Having cleared this threshold, the Court applied the beneficial interpretation approach from Wood Papers:
Once ambiguity about applicability is removed and the subject falls within the notification, “full play should be given to it” and it “calls for a wider and liberal construction”.
Hence, Entry 13 should be construed to cover the entire chain of renting activity that results in residential use.

The Court therefore held that the third condition—“for use as residence”—was satisfied, even though the immediate lessee was a commercial company, because the property was in fact used as residential quarters by the student/working‑women sub‑lessees.

3.3.3. Activity‑Specific vs Person‑Specific Exemptions

The Court characterised Entry 13 as an activity‑specific exemption:

Some GST exemptions are person‑specific—they apply only when the service provider or recipient belongs to a particular class (e.g., charitable entities registered under Section 12AA of the Income Tax Act, or specific utilities transmitting electricity).
By contrast, Entry 13 does not refer to any class of persons; it refers only to the nature of activity: renting a residential dwelling for use as residence.

This distinction is crucial:

The fact that DTwelve is a profit‑oriented, GST‑registered company does not, by itself, disqualify the transaction from exemption;
So long as the activity—renting of a residential dwelling for use as residence—is made out, the identity or motives of the immediate lessee are secondary.

This clarification will have wide application across GST exemption entries.

3.3.4. Purposive Interpretation and Dynamic Statutory Construction

The Court explicitly invoked the doctrine of purposive interpretation, citing Aharon Barak’s formulation that purposive interpretation balances three components: language, purpose, and judicial discretion.

Key points:

Literal interpretation is not always decisive where it undermines the statute’s purpose or leads to absurd results.
The “semantic possibilities” of the text set the outer boundary, but within that range, courts should select the meaning that best advances the legislative purpose.
For Entry 13, both a narrow reading (“lessee must personally reside”) and a broader one (“ultimate use as residence suffices”) are linguistically plausible; purposive interpretation favours the latter.
Statutory interpretation is “dynamic”, not static; courts must respond to evolving social and economic contexts (e.g., aggregator‑based co‑living models).

The judgment reinforces the trend (seen in cases like Shailesh Dhairyavan v. Mohan Balkrishna Lulla) towards purposive, rather than purely literal, interpretation in social‑welfare‑tinged fiscal provisions.

3.3.5. Effect of the 2022 and 2023 Amendments to Entry 13

The Court carefully delineated the temporal scope of its ruling:

Amendment w.e.f. 18.07.2022
Entry 13 was amended to read:
“Services by way of renting of residential dwellings for use as residence except where the residential dwelling is rented to a registered person.”
- Post‑amendment, renting a residential dwelling to a registered person (such as DTwelve) is not exempt, regardless of ultimate use, subject to later carve‑outs.
- The Court accepted that from 18.07.2022 onwards, the respondent is not entitled to exemption because he rents to a registered person.
Explanation w.e.f. 01.01.2023
An Explanation was inserted to clarify that Entry 13 still covers certain cases where the residential dwelling is rented to a registered person—specifically where:
- the registered person is a proprietor of a proprietorship concern,
- the dwelling is rented in his personal capacity, and
- it is used as his own residence and not for the concern’s business.
This shows that even under the tightened regime, the legislature’s core intent remains to relieve residential use from GST, subject to certain anti‑abuse constraints.
No retrospective effect
The State’s position effectively sought to apply the restrictive logic of the 2022 amendment backwards to the pre‑amendment period (2019–2022). The Court rejected this, holding that:
- For the earlier period, the unamended Entry 13 controls, and
- Retrospective imposition of such a burden via interpretation is impermissible.

4. Impact and Implications

4.1. On Hostels, PGs and Co‑Living Businesses

The decision will be especially consequential for:

Landlords leasing residential buildings to operators for hostels, PGs, and co‑living spaces;
Aggregator businesses (similar to DTwelve Spaces) operating long‑stay accommodation for students, interns, and young professionals.

Key implications:

Pre‑18.07.2022 period:
Where:
- the property is genuinely a residential dwelling, and
- it is in fact used as a residence by the ultimate occupants,
the owner’s lease to an operator should fall within the Entry 13 exemption, irrespective of:
- the corporate/commercial nature of the lessee, or
- the fact of sub‑leasing to end‑users.
Post‑18.07.2022 period:
Exemption is generally withdrawn where the residential dwelling is rented to a registered person (like an aggregator), except as preserved by the 2023 Explanation for individual proprietors. For such later periods:
- Landlords leasing to registered aggregators will generally be liable to charge GST.
- However, the reasoning about what constitutes a “residential dwelling” remains authoritative for classification disputes.
Pending disputes:
A large number of pre‑18.07.2022 disputes where departments denied exemption on grounds similar to the AAAR’s reasoning (hostel ≠ residential; lessee not personally residing) are now likely to be resolved in favour of taxpayers, subject to factual verification.

4.2. On Interpretation of GST Exemptions

The judgment strengthens several doctrinal strands:

Confirming the Wood Papers approach: strict construction at the threshold; liberal construction once applicability is clear.
Reinforcing Mother Superior’s distinction between general and beneficial exemptions—ambiguity in the latter favours the beneficiary.
Clarifying the activity‑specific vs person‑specific exemption dichotomy, which parties can invoke in future GST exemption disputes.
Normalising purposive interpretation in fiscal statutes where social/economic welfare considerations are implicated (e.g., residential housing).

4.3. On Revenue Planning and Compliance

For tax administration:

The department will need to recalibrate show‑cause notices and adjudications involving pre‑amendment periods to align with this ruling.
Classification of premises as “residential dwelling” will remain a factual question, but the Court’s guidance:
- long‑term stay,
- residential nature in municipal records,
- primary use as home/sleeping place
will guide this inquiry.
The decision discourages revenue authorities from narrow, hyper‑technical readings that disregard evident legislative purpose and practical realities.

5. Complex Concepts Simplified

5.1. “Residential Dwelling” vs “Commercial Premises”

A residential dwelling is a place meant to be someone’s home—where people primarily live, eat, sleep. Examples:

Houses, apartments, residential hostels, dormitories used as living quarters.

It is not:

Office buildings, factories, warehouses, shops;
Hotels, motels, inns, guest houses etc. meant for short, transient stays where people do not “settle” for a period as their residence.

A hostel for students where they live for several months, storing belongings, sleeping nightly, and treating it as their home during that period, is much closer to a residential dwelling than to a hotel.

5.2. “Supply of Service” and “Exemption Notification”

Under GST, almost every economic transaction is treated as a supply. Renting a building is a supply of service.
Tax is normally charged on such supplies, but the Government can issue Exemption Notifications that list supplies on which no GST is payable.
Entry 13 of Notification 9/2017 is one such exemption, for renting residential dwellings for use as residence (subject to later amendments).

5.3. “Activity‑Specific” vs “Person‑Specific” Exemptions

A person‑specific exemption depends on who is involved. Example: services provided by charitable trusts registered under Section 12AA of the Income Tax Act. Only those trusts get the benefit.
An activity‑specific exemption depends on what is done, regardless of who does it. Entry 13 is such an exemption: if the activity is “renting of residential dwelling for use as residence”, the exemption applies, whether the landlord is an individual or a company, and whether the lessee is an individual or a company.

5.4. “Purposive Interpretation”

Instead of reading words mechanically, courts ask: What was the law trying to achieve?
They choose among reasonable readings the one that best furthers that purpose.
Here, the purpose of Entry 13 was to ensure residential use is not taxed at 18%. The Court therefore preferred an interpretation that exempted hostel‑style residential use rather than one that taxed it due to technicalities.

5.5. “Beneficial Exemption”

Some exemptions favour a particular social group or activity (e.g., charities, religious institutions, residential housing).
Where an exemption has a beneficial purpose, courts tend to resolve doubts in favour of the beneficiary, once it is clear that they fall within the general wording of the exemption.

5.6. “Sub‑Lease”

A lease is a contract by which a landlord gives a tenant the right to use property for a period in return for rent.
A sub‑lease is when the tenant in turn grants similar rights to another person (sub‑tenant), while still retaining his own leasehold interest.
Legally, sub‑leasing is also “renting”. In this case, DTwelve’s agreements with students/working professionals are sub‑leases.

6. Conclusion

The Supreme Court’s decision in The State of Karnataka v. Taghar Vasudeva Ambrish establishes an important precedent on multiple fronts.

It affirms that hostels and similar long‑stay accommodations for students and working professionals, when housed in buildings otherwise residential in nature, fall within the concept of “residential dwelling” for GST purposes.
It clarifies that Entry 13 of Notification 9/2017 (pre‑18.07.2022) is an activity‑specific exemption for renting residential dwellings for use as residences, and does not require the immediate lessee to personally reside in the property.
It reinforces the doctrine that exemptions are construed strictly at the threshold but liberally once conditions are met, especially for beneficial exemptions with a social‑welfare orientation, such as relief on residential housing.
It deploys purposive interpretation, placing legislative intent (protecting residential use from high GST) above hyper‑technical readings that could frustrate that purpose.
It delineates the temporal reach of subsequent amendments, making clear that the restrictive 2022 change and the 2023 Explanation cannot retrospectively colour the interpretation of the unamended Entry 13.

In the broader legal context, the judgment will guide not only GST classification of rental transactions but also the interpretive approach to fiscal exemptions that intersect with housing, education and other socially significant sectors. It aligns tax law with ground realities of modern accommodation models and ensures that students and young professionals are not unduly burdened with GST on their residential rents under the guise of formalistic distinctions.