GST on Hostel & PG Accommodation Services

The taxation of hostel and paying guest (PG) accommodation services under the Goods and Services Tax (GST) regime has been a subject of persistent debate, especially due to overlapping interpretations between residential dwelling exemptions, commercial service classifications, and the nature of long-term stay arrangements. Hostel/PG services are widely used by students, working professionals, and migrant workers across India. The GST implications affect both operators and residents, making it essential to understand the legal position, exemptions, valuation rules, and compliance requirements associated with this sector.

Hostel and PG accommodation typically involves providing furnished rooms or shared spaces along with essential amenities such as housekeeping, electricity, water, common facilities, and in some cases, meals. These services can be administered by educational institutions, private operators, or corporate housing providers. Unlike hotels, hostels and PGs generally offer long-term occupancy, ranging from several weeks to months. The distinction between “residential dwelling” and “commercial lodging” becomes critical in determining GST applicability.

Exemption Framework Under GST

One of the central issues is whether hostel and PG stay qualifies for the GST exemption applicable to “renting of residential dwelling for use as residence.” Under the exemption structure, pure renting of a residential dwelling for residence is not taxable. The intention behind this exemption is to prevent GST from burdening basic housing needs. However, hostel and PG accommodation is often considered a bundled service because it includes food, housekeeping, and other facilities, which may push it into the category of commercial accommodation rather than pure renting.

Residential dwelling implies a home-like space meant for permanent or semi-permanent residence. Hostels and PGs, however, are usually categorized as commercial lodging services because they often involve shared occupancy, lack tenancy rights, and provide amenities beyond bare accommodation. This commercial character makes many operators fall within the taxable category of “accommodation services,” similar to hotels and lodges, although the tariff structure and intent may differ.

GST Rate Structure for Accommodation

The GST rate applicable to hostel and PG accommodation depends primarily on the per-day room charges. Accommodation with a value below a specific daily threshold may qualify for exemption. Accommodation exceeding the threshold is taxable at the standard lodging GST rates. The practice of converting monthly charges into a per-day equivalent is commonly used to test whether the taxable threshold is crossed.

Hostel and PG accommodation commonly includes bundled amenities such as Wi-Fi, meals, laundry, cleaning and security. Under GST principles, a composite supply is taxed based on the principal supply—if accommodation is principal and other amenities incidental, the accommodation tax rate applies to the composite. However, if amenities are charged separately, they may attract distinct GST rates. Operators must carefully structure pricing and invoices to reflect the nature of supplies.

Educational Institution Hostels

Hostels provided by educational institutions as part of education services often enjoy favourable treatment; they may be considered incidental to education and exempt. Private hostels unaffiliated with educational institutions cannot typically claim this exemption and are treated under normal GST rules.

Small PG operators may remain below the GST registration threshold and thus not be required to register or charge GST. Once the turnover exceeds the threshold, registration and compliance obligations arise, including issuing tax invoices and filing returns. Input Tax Credit (ITC) is available to taxable operators but not for providers of exempt accommodation, which affects cost structures and pricing strategies. Litigation in this sector typically revolves around classification disputes, thresholds, and whether the supply is a composite or mixed supply.

Impact on Residents

If GST applies, operators usually pass the tax on to residents, affecting affordability for students and entry-level professionals. The balance between compliance, pricing, and maintaining affordability remains a key challenge for operators.

The GST treatment of hostel and PG accommodation services hinges on the nature of the offering, daily tariff slabs, bundling of amenities, and the operator’s turnover. While basic residential renting remains exempt, hostels and PGs—owing to their service-oriented structure—typically attract GST above specific thresholds. The interpretation and implementation of GST rules in this sector will continue to evolve as authorities clarify classifications and emphasize standardization.