GST on Hostels & PG Accommodations: Rules

Renting residential properties to students and working professionals through Paying Guest (PG) setups and private hostels is a significant sector in the Indian real estate market. However, the tax treatment of hostels and PGs has been subject to intense legal debate.

Following multiple conflicting rulings by different Authority for Advance Rulings (AAR) benches, the GST Council introduced specific amendments to clarify the tax status of student housing. In this comprehensive guide, we cover the history of PG taxation, the ₹20,000 monthly exemption limit, the 90-day continuous stay rule, the impacts on Input Tax Credit (ITC), and Tally Prime transaction entry methods.

Historical Context and AAR Controversies

Before mid-2024, the tax status of PGs was highly controversial. In cases like *Srisai Luxurious Stay*, the Karnataka AAR ruled that hostels and PGs do not qualify as "residential dwellings for use as residence." The AAR argued that because PGs provide common dining facilities, security, and multiple sharing beds, they resemble commercial guest houses or hotels rather than independent houses. Consequently, the AAR ruled that PG income was subject to **12% GST** (later increased to 18%), raising rental costs for students and young professionals.

The New Exemption Framework: The ₹20,000 / 90-Day Rule

To resolve these conflicts, the GST Council issued a notification granting exemptions for hostel and PG accommodations under specific conditions:

If any of these conditions are not met, the entire rental transaction is taxable under the Forward Charge Mechanism (FCM) at the rate of **18% GST** (SAC code 996311).

Warning on Early Checkouts: The 90-day continuous stay rule is strictly enforced by tax authorities. For example, if a student rents a PG room for a planned stay of 6 months (meeting the exemption criteria) but decides to vacate or checks out on the 85th day due to examinations ending or relocation, the exemption is retrospectively revoked. The PG operator is then liable to pay 18% GST on the entire rental receipts collected from that student for the 85-day duration. Hostel operators must structure their lease agreements with lock-in periods to protect against sudden tax liabilities resulting from early checkouts.

The Aggregate Turnover Registration Trap

A common misunderstanding among PG operators is that they do not need to register for GST if all their rental services are exempt under the ₹20,000 monthly limit. Under GST law, the threshold limit for registration is ₹20 Lakhs per annum of **Aggregate Annual Turnover (AATO)** (₹10 Lakhs for special category states).

Section 2(6) of the CGST Act defines aggregate turnover to include all taxable, zero-rated, and **exempt supplies**. Therefore, if your total rental receipts from students exceed ₹20 Lakhs in a year, you must register for GST, even though you do not collect any GST on the transactions.

Input Tax Credit (ITC) Rules and reversals

Because exempting rental income blocks you from claiming Input Tax Credit, PG operators must be careful with their purchases:

• Exempt Accommodations: If your hostel provides exempt stays, you cannot claim ITC on purchases of furniture, building materials, CCTV systems, washing machines, or internet services. Any ITC claimed must be reversed under **Rule 42**.
• Taxable Accommodations: If your PG charges more than ₹20,000 per month or accommodates guests for short-term stays (less than 90 days), you are supplying taxable services and can claim full ITC on all business purchases.

Recording Hostel Rent Transactions in TallyPrime

For hostel and PG operators, recording both exempt and taxable rental income in Tally Prime requires proper voucher creation and tax rate configurations.

Step 1: Configure Rental Income Ledgers

Create separate sales ledgers for different rental categories:

• Exempt Hostel Rent Income: Group under *Sales Accounts*, set GST applicability to *Applicable*, and set tax rate/transaction type to *Exempt*.
• Taxable Hostel Rent Income: Group under *Sales Accounts*, set GST applicability to *Applicable*, and set the tax rate to *18%* (SAC 996311).

Step 2: Post the Sales/Receipt Entry

When recording receipt of rent from a student whose stay meets the exemption criteria, post a Receipt voucher (F6):

Debit: HDFC Bank A/c                      -- ₹18,000 Credit: Exempt Hostel Rent Income A/c     -- ₹18,000

If the customer is a corporate entity renting a room for a short-term project (staying less than 90 days), record the sales invoice (F8) with GST:

Debit: Customer A/c                       -- ₹29,500 Credit: Taxable Hostel Rent Income A/c    -- ₹25,000 Credit: CGST Output A/c (9%)              -- ₹2,250 Credit: SGST Output A/c (9%)              -- ₹2,250

Primary Focus: TrulyInvoice Purchase Automation

Hostel and PG operators must manage a large volume of daily purchase invoices, including utility bills, food supplies, cleaning chemicals, and maintenance services. Manually typing these supplier bills into Tally Prime is time-consuming and prone to transcription errors.

To automate this process, use **TrulyInvoice**. TrulyInvoice reads your supplier bill PDFs and scanned invoice images using layout-aware OCR. The platform automatically extracts line items, tax rates, and HSN codes, and syncs formatted F9 purchase vouchers directly into Tally Prime. This eliminates manual data entry mistakes for a flat subscription of **plans starting at ₹399/month**, ensuring your purchase books remain accurate.