Taxes (GST) On Paying Guest Accommodation: Know tax rates and rules

Is Paying Guest A Commercial Activity?

Finding affordable accommodation in cities and towns is difficult for youngsters who are studying or working on minimum salaries.
The demand for alternate housing to cater to this segment paved the way for paying guest's houses.
This new subcategory in the real estate sector is known locally as PG or Paying Guest service.
People working in Indian cities opt for these services to reduce their cost of living.

What is a PG House?

Paying Guest accommodation (PG) is a facility that allows a guest to rent one portion of a house from the landlord or owner.
The guest can avail of basic amenities like laundry and food by paying additional fees.
Most students opt for Paying Guest accommodation because it is cheaper than hostel facilities.
PG accommodation is also popular in Indian cities known for industries and factories.
The owners of such properties rent out their rooms to the employees or workers of the nearby companies or factories to earn additional income.
Recently, many corporates have started providing these services in an organised manner.
If an owner of a house decides to rent a section to a paying guest, he wouldn’t have to pay service tax.
However, corporates renting living spaces to many guests will have to pay taxes in the form of Goods and Services Tax (GST).
The Government of India has laid out a threshold limit for services.
If the value of the service exceeds the value of Rs.10 lacs per annum, the provider becomes eligible for paying service taxes in India.

Types of Paying Guest Facilities

Paying Guest facilities can be:

Basic accommodation service
Basic Accommodation service with services like food, and laundry.
A PG house could either be a basic accommodation place where the owner gives one part or the whole of his residential home as a paying guest facility.
Or it could be run by an owner who has taken the entire building on lease with the sole intent of providing PG services to many people at once.

Is GST Applicable to Paying Guest Houses?

To know what comes under GST and what does not, it is imperative to understand the meaning of the word ‘supply’ as defined in the 7th section of the CGST Act.
According to it, the expression ‘supply’ is a wide container that holds every form of service or goods supply like an exchange, barter, sale, rental, disposal, lease, and license.
These kinds of services, goods, or their combination where a person performs or agrees to perform these exchanges for a mentioned period, come under ‘supply.’
If any service is imported with or without the intention of business furtherance, or if every activity mentioned in Schedule I is agreed to be made or made without considering anything, the process is legally a part of the expression ‘supply.’
After the launch of the GST Act, 1A of Section 7 was inserted and it became effective from February 1, 2019. It mentions the activities of NES that should not be treated as a supply of services or goods.
It says that any transaction or activity listed in Schedule III does not come under the expression ‘supply.’
It also mentions that the transactions and activities which are undertaken by a State government, Central government, or a local authority, where are public authorities notified on the Council’s recommendation by the Government, shall not come under the term ‘supply.’
Originally, Section 7 (1) had four parts, but it was omitted w.e.f July 1, 2017, after GST took effect.
In its place, Section 7 (1A) was inserted with its entire reference to the Central Goods and Services Tax (1st) Amendment Act that took force on February 1, 2019.
Before this Amendment took force, even if the activities specified in Schedule II did not pass the tests specified in Section 7 (1) (a), (b), or (c), they still constituted supply.
Now that’s not the case.
After the new Amendment Act took force, Schedule II is only used for determining if an activity mentioned in it is eligible to be treated as a supply of services or goods.
Under the provisions laid out in Section 7 (1), will need to independently constitute a ‘supply.’

For constituting a ‘supply,’ the conditions listed below must be met.

The supply should be made with the intention of business furtherance or it should be in the course of it.
It should be made for any consideration.
Every type of supply is included. For illustration, types of supply are mentioned like exchange, barter, sale, and license.
A person should make the supply.

Section 7, specifically enumerates ‘rental’, ‘license’, and ‘lease.’
If we consider the question of Paying Guests, we notice that there is a notable consideration of the tenants or students paying money to the service provider for their service.
This means that 3 of the 4 conditions listed above have been satisfied.
Now, we must consider if these services come under the specifications of ‘furtherance of business.’
In Section 2 (17) of the CGST Act, the meaning of the word business is mentioned.
The subpart of the section says that whether activities like manufacture, trade, profession, commerce, wager, or any adventure are carried on for pecuniary benefits or not, they are included in the meaning of the term ‘business.’
It also says that any transaction or activity that is an ancillary, incident, or in connection to Section 2 (1A) are also included.
Whether there is frequency, volume, regularity, or continuity of transactions, any activity mentioned in sub-clause A means ‘business.’
You would be doing business if you acquire or supply goods including capital services and goods which are in connection to the closure or commencement of a business.
In the following sub-clauses till (i), the term ‘business’ is inclusively defined.
Every transaction, except personal transactions, are mentioned in this list.
Majorly, GST is only applicable to commercial transactions.
Any supply made in a personal capacity by a person does not mean ‘supply’ thus, it cannot be charged under GST.
Commerce is explicitly mentioned as a part of the term ‘business.’
In any manner, the renting of immovable property does not mean ‘commerce.’
Consequently, renting of immovable property can be described as ‘in the course or furtherance of business.’
Now that PG services are categorised as supply following Section 7 of the CGST Act, we must check if it is a supply of service or goods according to Schedule II of the CGST Act.

We must note that Entry 5 (a) of Schedule II explicitly mentions the inclusion of ‘renting of immovable property’ as a supply of services.
We only have to know if the supply under consideration is exempted from taxes or not.
The Central Government can exempt one part or entire goods and services from taxes.
While exercising the powers given to the government by Section 7, the Central Government authorities released a notification on June 28, 2017.
In this notification, the services exempted from tax are mentioned.

Some are listed below.

Renting a property for residential purposes
Lodging or Residential services are provided by an inn, guest house, or hotel if the supply of a unit is less than INR 1000 per day.

The services like the inn, guest houses, or hotels need to remain accessible to the masses.
Thus, GST does not apply to them when their amount is less than INR 1000 per day.

FAQs

Q- I will be leasing one room in my house for rent. Will I have to pay Service Tax on that?

Ans- Service tax or GST is not applicable for leasing a part or entire property in India.

Q- Will I have to pay GST on renting an entire house?

Ans- No. GST is not applicable when a residential area is rented for living purposes.

We hope our article turned out to be useful for you. For more such informative content, you can visit these linked articles as well:
Types Of GST	How to Pay GST Online?	Documents Required For GST Registration
GST on Food items	GST on Real Estate	How to Apply for GSTN?