Tax woes of Indian student housing providers revealed

The interpretation of tax liabilities is a top concern for student accommodation operators.

According to Cushman & Wakefield, over 37 million (mn) students are enrolled in higher education institutes across India. Over 24% migrate from their home bases to pursue higher education in bigger, urban centres. In fact, Tier 1 cities make up 50% of total student enrolment in higher education, indicating the skewed preference for educational institutes in larger, urban centres.

A major fallout has been the need for private, off-campus accommodation options for these migrating students, who cannot be accommodated in the campus hostel facilities. Figures indicate that there is a shortfall of 3.78 mn student beds in the installed hostel capacity in the top 35 centres (based on unmet student bed demand).

In addition, off-campus private dwellings are largely informal in nature, even as professionally managed student accommodation (PMSA) has started gaining major traction. Students and their parents/guardians alike have begun to consider the impact of accommodation quality on the academic experience and overall well-being. This has led to a greater demand for comfortable, hassle-free, and safe accommodation options made available by PMSA operators.

Here’s more from Cushman & Wakefield:

In a world where the impact of COVID will redefine many trends, the need for safe, hygienic and quality PMSA, both on and off-campus, will gain more impetus. Even though the higher education sector will see technology-induced changes, classroom teaching will sustain while pushing the need for quality accommodation.

The operational structure of the PMSA sector functions in such a way that it interacts with multiple sub-sectors while focusing primarily on enhancing the overall education experience of the migrant student population through superior quality accommodation. For instance, while a PMSA’s primary objective is to cater to the needs of its student residents, the facility simultaneously generates employment opportunities for various people including property managers, service staff, domestic helps, cooks, food and beverage vendors, marketing staff, accounts staff, sales team etc.

A welcome aspect of this operational model is that the whole process takes place in an organized format with contracts and agreements.

Like most industries in nascent stages, even as PMSA has emerged in the forefront of alternative real estate asset and investment classes, the stakeholders continue to grapple with certain challenges. For most new industries, a majority of these challenges arise in terms of policy reforms not keeping pace with the speed at which the sector is growing. These aspects usually impact sectoral operations and, more prominently, tax imperatives.

Alongside the emergence of PMSA, India also has moved to the GST regime for indirect taxes. While being beneficial in terms of ‘one country one tax’ and easing filing regulations, businesses have found it challenging when adapting to and adopting certain aspects. The PMSA sector also seeks some clarifications. Specifically, key challenges include the interpretation of tax liabilities, incentives and a lack of clarity around standardization and norms. The first, in particular, appears to be a core concern for Indian PMSA operators.

Though accommodations so provided relate to residential dwelling, which has exemption in GST, clarity on the same along with a single and lower GST rate could go a long way in supporting this sector. GST & Student Housing 3 SAPFI.

In this report we explore GST-related challenges that the PMSA sector faces and recommend some measures which we hope may provide some directional suggestions to the authorities to enable a higher degree of Ease of Doing Business for this sector.

Click here to download the report.