Looking for expert help with Income tax and GST for PG and hostel owners India? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Key Takeaways
- PG and hostel rent of up to Rs 20,000 per person per month is exempt from GST if the resident stays at least 90 days in a row (Notification 4/2024-Central Tax (Rate), from 15 July 2024).
- The test is per person per month, not per room. A Rs 30,000 twin-sharing room is Rs 15,000 per person and still qualifies.
- A PG with only exempt rent doesn't need GST registration. Add short-stay rooms and your exempt rent starts counting towards the Rs 20 lakh limit.
- Running a PG with meals and staff is usually business income. Section 44AD deems 6% profit on digital receipts and 8% on cash.
- Missed 31 July 2026? File a belated return for AY 2026-27 by 31 December 2026 with a Section 234F fee.
Is GST applicable on PG rent in India? No, if the rent is Rs 20,000 or less per person per month and the resident stays for a minimum continuous period of 90 days. This exemption runs from 15 July 2024 (Notification 4/2024-Central Tax (Rate)). Past periods from 1 July 2017 were regularised by CBIC Circular 228/22/2024-GST. Stays that fail either test are taxable.
If you run a paying guest (PG) house or a hostel, whether in Kondapur, Madhapur, Ameerpet or near any college in India, two questions matter at tax time. Do you need to charge Goods and Services Tax (GST) on the rent? And how is your income taxed? This guide answers both for FY 2025-26 (AY 2026-27), with worked numbers you can match against your own register.
When is your PG rent exempt from GST?
Until July 2024, PG and hostel rent was a grey area. Many owners argued it was "renting of a residential dwelling for use as residence", which is exempt. Tax officers often disagreed and treated it as taxable accommodation, like a lodge.
The GST Council settled this at its 53rd meeting on 22 June 2024. CBIC then notified a specific exemption from 15 July 2024 (Notification 4/2024-Central Tax (Rate), dated 12 July 2024). Your supply of accommodation is exempt when both conditions hold:
- Value: Rs 20,000 or less per person per month.
- Duration: the accommodation is supplied for a minimum continuous period of 90 days.
CBIC also regularised the past. For 1 July 2017 to 14 July 2024, GST liability on accommodation meeting the same two conditions is regularised "as is where is" (Circular 228/22/2024-GST, para 9.4). So if both conditions held, no fresh demand should arise for those years. It also means GST you already paid for those years won't be refunded.
Comparison
Is Your PG Rent GST-Exempt? (from 15 July 2024)
| Situation | Per person per month | Continuous stay | GST |
|---|---|---|---|
| Student in a 3-sharing room | Rs 8,500 | 10 months | Exempt |
| Working professional, single room | Rs 18,000 | 1 year | Exempt |
| Twin-sharing room at Rs 30,000 total | Rs 15,000 | 6 months | Exempt |
| Premium single room with meals | Rs 24,000 | 1 year | Taxable (value test fails) |
| Intern staying 45 days | Rs 12,000 | 45 days | Taxable (90-day test fails) |
| Guest room let by the night | Rs 1,500 per night | 3 nights | Taxable (both fail) |
Source: Notification 4/2024-Central Tax (Rate); CBIC Circular 228/22/2024-GST, para 9
What about meals? Most PGs quote one monthly price covering bed, food, Wi-Fi and housekeeping. The exemption is worded for "accommodation services". If your package includes meals, how that bundle is treated is a judgement call, so keep your agreement and invoice clear on what the monthly charge covers. If you're close to Rs 20,000 per person, have the structure reviewed before you change prices.
Do you need GST registration?
This is where many PG owners slip. The rule has two parts.
- Only exempt rent: if every resident meets both tests, you supply only exempt services. Section 23(1)(a) of the CGST Act says such a person isn't liable to register, however large the rent roll.
- Any taxable supply as well: the moment you also let short-stay rooms, or rent at more than Rs 20,000 per person, you're no longer "exclusively" exempt. Now the normal Rs 20 lakh threshold for services applies (Section 22(1)), and aggregate turnover includes exempt supplies (Section 2(6)). Your exempt PG rent counts towards the Rs 20 lakh.
Example 1: a 60-bed PG in Kondapur with four guest rooms.
- 60 beds at Rs 11,000 per person per month, all long-stay residents: 60 x 11,000 x 12 = Rs 79,20,000 a year. All exempt.
- Four guest rooms let by the night to visiting parents and interns: 300 room-nights at Rs 1,500 = Rs 4,50,000. Taxable.
- Aggregate turnover: Rs 79,20,000 + Rs 4,50,000 = Rs 83,70,000. That's above Rs 20 lakh, and not all of it is exempt, so registration is compulsory.
- GST on the guest rooms at 5%: Rs 4,50,000 x 5% = Rs 22,500 (2.5% CGST plus 2.5% SGST), with no input tax credit.
Without the guest rooms, the same PG needs no registration at all. So before you start taking nightly guests, check whether the extra rent is worth the registration and monthly returns it triggers.
Rate on taxable stays. From 22 September 2025, accommodation valued at up to Rs 7,500 per unit per day is taxed at 5% without input tax credit (Notification 15/2025-Central Tax (Rate), amending Notification 11/2017-Central Tax (Rate)). For more on nightly room tariffs, see our guest house and homestay GST guide and GST registration service.
Is your PG income house property or business?
It turns on what you actually do.
- You lease the building to an operator for a fixed monthly rent and provide nothing else. That rent is usually income from house property. You get a flat 30% deduction on the net annual value under Section 24(a). See our let-out property guide.
- You run the PG yourself, with beds, meals, a cook, a warden, cleaning and daily management. That's normally business income. You can either keep books and pay tax on actual profit, or use Section 44AD.
Example 2: an owner who leases a building to a PG operator (new regime). Rent Rs 1,50,000 a month, so Rs 18,00,000 a year. Municipal tax paid Rs 60,000. No home loan.
- Net annual value: Rs 18,00,000 minus Rs 60,000 = Rs 17,40,000.
- 30% deduction: Rs 5,22,000. Income from house property: Rs 12,18,000.
- Slab tax: Rs 20,000 (Rs 4-8 lakh) + Rs 40,000 (Rs 8-12 lakh) + 15% of Rs 18,000 (Rs 2,700) = Rs 62,700.
- Income is only Rs 18,000 above Rs 12 lakh, so marginal relief under Section 87A caps the tax at Rs 18,000. Add 4% cess of Rs 720. Tax payable: Rs 18,720.
How does Section 44AD work for a PG business?
Step-by-Step Guide
Filing Income Tax for a PG Business (AY 2026-27)
Check who you are
Section 44AD is open to a resident individual, HUF or partnership firm. An LLP or company can't use it.
Check the receipts limit
Up to Rs 2 crore, or up to Rs 3 crore if cash receipts are within 5% of total receipts.
Split receipts by mode
Rent received by UPI, card, cheque or bank transfer is deemed 6% profit. Cash rent is deemed 8%.
Pay advance tax by 15 March
Under Section 44AD you pay the full advance tax in one instalment by 15 March (Section 211(1)(b)).
File the right form
ITR-4 if total income is within Rs 50 lakh. ITR-3 if you keep books and declare actual profit.
Source: Sections 44AD, 44AB, 87A and 211, Income-tax Act 1961; Finance Act 2025
Example 3: a 150-bed hostel, run by the owner (new regime). Rent Rs 12,000 per person per month, so 150 x 12,000 x 12 = Rs 2,16,00,000 a year.
- Receipts are above Rs 2 crore, so Section 44AD is available only if cash is within 5%. Here 97% comes in by UPI and bank transfer, and cash is Rs 6,48,000 (3%). The Rs 3 crore limit applies.
- Deemed profit: 6% of Rs 2,09,52,000 = Rs 12,57,120, plus 8% of Rs 6,48,000 = Rs 51,840. Total Rs 13,08,960.
- Slab tax: Rs 20,000 + Rs 40,000 + 15% of Rs 1,08,960 (Rs 16,344) = Rs 76,344. Income exceeds Rs 12 lakh by more than the tax, so there's no 87A rebate or marginal relief.
- 4% cess: Rs 3,054. Tax payable: Rs 79,398, rounded to Rs 79,400 under Section 288B.
Now change one fact. If 8% of the same rent came in cash, receipts of Rs 2.16 crore would exceed the Rs 2 crore limit, and Section 44AD wouldn't apply. You'd need full books, and a tax audit, because turnover is above Rs 1 crore and the Rs 10 crore limit needs cash within 5% (Section 44AB(a)). Collecting rent by UPI or bank isn't just convenient; it can decide which regime you file under.
Once you opt out of Section 44AD after using it, you can't return for the next five years. During that time you need books and an audit whenever income exceeds the basic exemption limit (Section 44AD(4) and (5), Section 44AB(e)). Our Section 44AD guide covers this in detail.
These rules apply to FY 2025-26 (AY 2026-27) under the Income-tax Act 1961. Income earned from 1 April 2026 falls under the Income-tax Act 2025, which renumbers the sections.
Common mistakes PG owners make
- Testing Rs 20,000 per room instead of per person. The limit is per person per month. Divide a shared room's rent by the number of occupants.
- Ignoring the 90-day condition. Monthly-renewable stays are fine if the resident actually stays 90 days or more in a row. Short stays by interns and visiting relatives are taxable.
- Starting nightly guest rooms without checking registration. Once you have any taxable supply, your exempt PG rent counts towards the Rs 20 lakh limit.
- Claiming the 30% house property deduction on a PG you run yourself. If you provide meals, staff and services, the income is normally business income, and the 30% flat deduction doesn't fit.
- Taking rent in cash. Cash above 5% of receipts can push a large PG out of Section 44AD, and it's harder to prove what each resident paid.
How Tax Garden helps PG and hostel owners
We check whether your PG is fully exempt or needs GST registration, and if it does, we handle the GST registration and monthly GST return filing. We also prepare your ITR under Section 44AD or on actual books through our ITR filing service. If your PG is in Hyderabad, see our Hyderabad tax consultant page, or check pricing.
