• Dated 18^th December, 2025

SC UPHOLDS HC RULING THAT RESIDENTIAL PROPERTY LEASED TO COMPANY FOR USE AS HOSTEL IS ELIGIBLE FOR GST EXEMPTION

BRIEF FACTS

The petitioner was a landlord who owned a residential building with several rooms in Bengaluru. He rented the entire building to a company. This company, in turn, gave the rooms to students and working women for long-term stay, usually for a few months. The revenue department said that the landlord must pay GST on this rent. Their argument was that the company renting the building was not actually living there and therefore the GST exemption for "renting a residential dwelling for use as residence" would not apply. However, the landlord argued that the building was clearly being used for residence by the final occupants and therefore the exemption should apply. The High Court, Karnataka agreed with the landlord, thereafter, the department appealed to the Supreme Court.

PETITIONER'S CONTENTION

The petitioner (landlord) contended before the Court that his building was a normal residential building meant for people to stay in, and that is exactly how it was used. Further it was contended That even though the company was the tenant on paper, the real purpose of the building remained residential because students and working women lived there as their home. He also argued that the law only required the property to be used as a residence, not that the person signing the lease must personally reside there. Therefore, he said the exemption from GST was fully applicable for the period in question.

RESPONDENT'S CONTENTION

The tax department argued that the exemption should not apply because the company that rented the building was not living there. They said that since a business entity had taken the premises on rent, GST must be charged. The authorities also insisted that the building was being used more like a hostel and not a normal house, and therefore it should not be treated as a "residential dwelling" for GST exemption.

COURT HELD

The Supreme Court held that the building was indeed a residential dwelling and that it was actually used as a residence by the students and working women who lived there. The Court said that the law does not require the tenant to personally stay there; it only requires that the property must be used for residential purposes, which was clearly satisfied in this case. It also said that the exemption depends on the nature of use, not on who signs the agreement. The Court further clarified that the 2022 change in GST rules, which removed this exemption when a company rents a residential building, cannot be applied to earlier years. As a result, the Supreme Court confirmed that no GST was payable by the landlord for the years before 2022.

BTA COMMENT

The judgment reaffirms a foundational principle of GST jurisprudence: the availability of the residential renting exemption is determined by the actual residential use of the property, rather than the legal character or corporate identity of the tenant. The Supreme Court unequivocally held that the 2022 amendment which brought residential leases to registered persons under the Reverse Charge Mechanism operates purely prospectively and cannot retroactively create tax liability for earlier periods. Consequently, for all years prior to 18 July 2022, residential leases remain squarely exempt, irrespective of whether the premises were taken on rent by an individual or a corporate entity, so long as the property was in fact used as a residence.

Case ref-STATE OF KARNATAKA Versus TAGHAR VASUDEVA AMBRISH (2025) 37 Centax 102 (S.C.)

Author: Aindrila Ghosh