Strategic GST Planning & Agreement Safeguards for Residential Leasing, Co-Living, and Student Housing

By CA Surekha S. Ahuja

Reference: Supreme Court judgment, State of Karnataka & Anr. vs. Taghar Vasudeva Ambrish, 04.12.2025

The Supreme Court’s 2025 ruling provides clarity that residential premises leased to aggregators, co-living operators, or corporates remain GST-exempt under Entry 13, Notification 9/2017-IT(R), provided the ultimate use is residential.

This professional advisory outlines strategic business model adjustments, lease agreement updates, service segregation practices, and operational safeguards to lawfully preserve GST exemption, avoid defaults, and remain scrutiny-ready.

Strategic Business Model Alignment

Focus Area	Recommended Action	Professional Implication
Property Segmentation	Separate residential (exempt) and commercial/hospitality (taxable) properties; consider distinct legal entities or cost centers	Ensures correct GST classification; audit-ready reporting
Revenue Segregation	Exempt: long-term residential rent; Taxable: ancillary services (mess, housekeeping, laundry, utilities); avoid bundling	Prevents inadvertent GST liability on exempt rent
Occupancy Verification	Maintain occupancy logs, tenant certifications, sub-leasing records; conduct quarterly internal audits	Supports SC-compliant residential use; strengthens scrutiny defense
Aggregator/Corporate Lease	Sub-leasing allowed only for residential purposes; define reporting obligations and audit rights	Preserves exemption eligibility despite corporate tenancy

Lease Agreement Clause Differentiators

Clause	Updated Wording / Differentiator	Rationale / Safeguard
Purpose / Use	“Premises shall be used exclusively for long-term residential accommodation, including student housing, co-living, or employee residences. Commercial or non-residential use is strictly prohibited.”	Ensures SC-compliant residential use
Sub-Leasing	“Sub-leasing permitted solely for residential purposes. Lessor may inspect sub-leasing records quarterly. Commercial or transient sub-leasing constitutes material breach.”	Maintains GST exemption even with intermediaries
Occupancy / Duration	“Minimum stay of three months. Daily/weekly occupancy prohibited. Lessor may verify occupancy logs quarterly.”	Differentiates from taxable hospitality services
Service Segregation	“Rent pertains exclusively to residential lease. Ancillary services (mess, housekeeping, laundry, utilities) shall be invoiced separately and are taxable. Bundling of taxable services with rent is prohibited. Allocation methodology to be applied if partial services included.”	Ensures audit-ready invoicing and prevents GST on exempt rent
Exemption & Legal Reference	“Lease qualifies for GST exemption under Entry 13, Notification 9/2017-IT(R), as affirmed by SC judgment dated 04.12.2025. Exemption is based on functional residential use, irrespective of lessee identity.”	Provides legal backing for scrutiny
Termination & Breach	“Material breaches include non-residential use, short-term occupancy (<3 months), bundling of taxable services, or sub-leasing violations. Remedies: termination, damages, invoice adjustment, indemnity claims.”	Protects lessor and operational compliance
Compliance & Reporting	“Tenant shall certify end-use quarterly. Lessor may inspect occupancy logs, sub-leasing agreements, and ancillary service invoicing. Internal audits to reconcile agreements, occupancy, and GST returns conducted quarterly.”	Ensures continued GST exemption eligibility

Bundled vs. Unbundled Services Matrix

Scenario	GST Treatment	Advisory Notes
Rent only	Exempt	Maintain minimum stay and occupancy logs
Rent + ancillary services bundled	Taxable on services portion	Must unbundle and invoice separately; define in lease
Utilities included in rent	Partial risk	Allocate or clarify as exempt in agreement
Commercial / hospitality operations	Fully taxable	Consider separate legal entity or cost center
Short-term stays (<3 months)	Fully taxable	Exclude from residential leasing operations

Procedural & Operational Safeguards

Area	Key Safeguard / Advisory
GST Returns	Report exempt rent as nil-rated; taxable services separately invoiced and returned
Documentation	Maintain lease agreements, sub-leases, occupancy logs, payment receipts, bank statements; historical occupancy logs for audit defense
Internal Audit	Quarterly verification of agreements, occupancy, invoicing, and GST returns
Revenue & Entity Segregation	Separate ledgers for exempt rent vs taxable services; split invoices if bundling unavoidable
Tenant / Aggregator Controls	Reporting obligations, audit rights, compliance indemnity clauses
Compliance Evidence	Periodic tenant certifications, occupancy logs, sub-leasing documentation

Risk Mitigation & Caution Points

Risk	Preventive Action / Clause
Short-term occupancy	Minimum stay clauses; occupancy monitoring & certification
Bundled services	Explicit prohibition in agreement; separate invoicing
Mixed-use properties	Separate entities or cost centers; segregate GST returns
Aggregator/corporate tenant non-compliance	Indemnity clause; reporting obligations; inspection rights
Documentation gaps	Comprehensive lease, sub-lease, occupancy, and payment record maintenance
Scrutiny challenges	Explicitly reference SC judgment, High Court rulings, and Entry 13
Operational misalignment	Internal audits to reconcile agreements, occupancy, invoicing, GST returns

Key Takeaways

1. GST exemption depends on functional residential use, not the legal identity of the lessee.

2. Precise clause drafting is critical: sub-leasing, occupancy, service segregation, breach triggers.

3. Operational and legal segregation between residential and commercial activities is mandatory.

4. Separate invoicing for taxable and exempt components prevents inadvertent GST liability.

5. Quarterly verification, tenant certification, and internal audits are essential safeguards.

6. Explicit breach remedies protect lessors and maintain compliance under scrutiny.

Conclusion

Integrating business model alignment, updated audit-proof lease clauses, service unbundling, and operational safeguards ensures:

• Lawful GST exemption for residential leasing and co-living operations

• Minimized default and scrutiny risk

• Professional, audit-ready documentation and operational clarity for aggregators, corporate tenants, and property owners

This forms a complete professional framework for GST-compliant residential leasing, student housing, and co-living operations.

GST on Leasing to Hostels/PGs: Supreme Court Brings Final Clarity

 By CA Surekha S Ahuja

Critical Analysis, Taxability Differentiators & Judicial Logic
(Judgment dated 04.12.2025 — State of Karnataka & Anr. vs. Taghar Vasudeva Ambrish)

The Supreme Court’s 2025 ruling is now the definitive authority on whether leasing residential premises to aggregators, student housing operators, or co-living companies is exempt from GST.
Short answer: Yes, it is exempt—provided the ultimate use is residential.

This judgment transforms tax certainty for the hostel/PG, co-living, student housing, and corporate rental ecosystem.

Facts of the Case—Simplified for Practical Understanding

Aspect	Details
Nature of property	Residential building with 42 rooms
Lessor	Individual owners (co-owners)
Lessee	DTwelve Spaces Pvt. Ltd., an aggregator providing long-stay accommodation
End use	Rooms sub-let as hostel/PG for 3–12 months to students & working professionals
Claim made	Exemption under Entry 13 of Notif. 9/2017-IT(R) — renting of residential dwelling for use as residence
AAR/AAAR	Denied exemption — said lessee (a company) was not residing
High Court	Allowed exemption
Supreme Court	Confirmed exemption in favour of assessee

Gist of the Supreme Court Ruling

Residential premises rented to an intermediary (company/aggregator/firm) for providing long-stay residential use remain exempt from GST.
The identity or legal form of the lessee is irrelevant.
What matters is the nature of the property and the ultimate use.

Professional Basis of Taxability vs. Exemption

GST exemption under Entry 13 applies only when both conditions are satisfied:

Residential Character of the Property

A “residential dwelling” is not defined in GST law.
Thus, courts rely on:

• Common parlance

• Service Tax Education Guide

• Judicial precedents

Residential dwelling = a place fit for long-term residence with living facilities.
Long-term hostels/PGs qualify.

Actual Residential Use

The Supreme Court clarified:
“Use as residence” refers to functional end-use — not who the lessee is.
Even if a company takes the lease and sublets it, the property is still “used as residence.”

This overrules AAAR’s interpretation that the lessee must personally reside.

Taxability Differentiators — A Clear Practitioner Matrix

Scenario	Property Type	End Use	GST Treatment	Why
Residential property leased to aggregator → used for long-term hostel/PG	Residential	Residential	Exempt	SC: End-use is residential; lessee identity irrelevant
Residential property leased to company → employee long-stay residence	Residential	Residential	Exempt	“Use as residence” test satisfied
Residential property leased for corporate guest house / short-term stays	Residential	Temporary/commercial	Taxable (18%)	Guest houses not treated as residential dwelling
PG/Hostel with transient occupancy (daily/weekly turnover)	Mixed/Commercial	Transient	Taxable	Treated like lodging/hotel services
Property constructed as hostel/commercial lodging	Non-residential	Hostel	Taxable	Nature of property itself is commercial
Serviced apartments with hotel-like amenities	Residential	Commercial hospitality	Taxable	Falls under accommodation services

This matrix is now a definitive compliance tool.

Court’s Reasoning — Analytical Breakdown

Residential Dwelling Interpreted through Common Parlance

Since GST law gives no definition, the Court relied on broad, ordinary meaning.
Long-term hostels/PGs match the attributes of residential dwellings.
They are clearly distinct from:

• Hotels

• Motels

• Lodges

• Guest houses

• Commercial accommodation

The Court stressed: design, duration, and functionality determine residential nature.

Lessee’s Identity Is Not a Condition in the Exemption

The Revenue incorrectly argued:
“Because the lessee is a company, exemption fails.”

The Court rejected this as legally baseless:

• Entry 13 does not require the lessee to reside.

• GST exemption is based on use, not who uses.

This interpretation aligns with principles of beneficial interpretation, applied especially where purpose is to protect residential housing from tax burdens.

Purposive Interpretation Overrides Rigid Technicality

The Supreme Court reiterated that exemptions connected to basic residential use must be construed liberally once conditions are met.

Charging GST merely because a company is the tenant would distort the very objective of the exemption.

Judicial Support for the Ruling

This decision harmonises with:

Earlier Service Tax Position

• Residential dwelling renting was exempt

• Hostels/PGs with long-term use treated as residential dwellings

• Education Guide (2012) supports this understanding

High Court Judgments

• Karnataka High Court in the same matter

• Gujarat High Court (hostel/PG with long-stay residents = residential dwelling)

Global VAT Practices

• EU & UK VAT: Long-term residential renting is exempt

• Only short-term lodging is taxable
  The Supreme Court’s logic aligns with international jurisprudence.

Final Taxability Position After Supreme Court Judgment

GST Exempt When

• The property is a residential dwelling

• The end-use is residential (long-term living)

• The tenant may be an individual, partnership, LLP, company, aggregator

• Subleasing ultimately results in residence (hostel/PG/co-living for long stays)

GST Applies When

• The building is commercial in nature

• Use is temporary, transient, or hotel-like

• Amenities convert it into hospitality service

• The property is designed as a hostel/lodge from inception

• Guest houses or daily/weekly PG stays are provided

Professional Takeaway

When analysing GST on renting for hostels/PGs/co-living, apply this guiding principle:

Once the property is a residential dwelling and is actually used for residence, GST exemption under Entry 13 applies—regardless of intermediaries or the corporate character of the lessee.

This judgment is now the final word and should guide scrutiny replies, assessments, GST structuring, and lease documentation.

GST on Video Editing and Similar Digital/Professional Services

 By CA Surekha S Ahuja

As India becomes a global hub for digital, creative, and professional services, professionals supplying video editing, animation, design, software, consulting, and similar services to clients outside India need a precise understanding of GST, export classification, ITC eligibility, domestic advisory charges, and refund mechanisms.

This guidance note integrates legal provisions, CBIC circulars, real-world scenarios, and nuanced advisory for professionals, CAs, and business advisors.

Defining Export of Services under GST

Legal Basis – Section 2(6), IGST Act 2017

A service qualifies as an export only when all five conditions are satisfied:

Condition	Requirement	Analytical Insight
Supplier	Located in India	GST-registered supplier; supply from India
Recipient	Outside India	Must be a distinct legal entity; supply to branch/subsidiary of same entity is not export
Place of Supply	Outside India	Determined under Sec 13(2) IGST; exceptions under Sec 13(3) must be considered
Payment	In convertible foreign currency or RBI-approved INR	Non-compliance converts supply to domestic
Distinct Entities	Supplier and recipient	Ensures separate economic identity; critical for zero-rated supply

Section 13(2) – Default Place of Supply Rule:

“The place of supply of services, except services specified in sub-sections (3) to (13), shall be the location of the recipient of services.”

Exclusions:

• Sec 13(3)(a): Services linked to goods requiring physical presence

• Sec 13(3)(b): Services requiring supplier presence

Circular Reference:

• CBIC Circular 230/24/2024-GST (10.09.2024) confirms that digital and remote professional services exported to foreign clients are zero-rated, even when delivered online.

GST Treatment:

• Zero-rated supply under Sec 16 IGST.

• Full Input Tax Credit (ITC) claimable on inputs and services used for exported services.

• Supplier may either operate under LUT/Bond or pay IGST and claim refund via Form RFD-01.

Critical Compliance Notes:

• Foreign currency receipt is mandatory; proof of inward remittance is essential.

• Recipient must be a distinct legal entity.

• Contracts and invoices should clearly indicate recipient location, currency, and zero-rated supply.

Domestic Advisory/CA Fees Billed to Indian Entities

Scenario: Indian exporter hires a CA or consultant for compliance, structuring, or advisory services.

Analysis:

• Supply is domestic → GST 18% (SAC 9982/9983).

• Refund of GST not allowed.

• ITC may be claimed by the Indian exporter if advisory service is directly used for exported services.

Key Advisory Points:

1. Ensure invoice explicitly mentions GST.

2. Maintain contracts linking advisory work to exported services.

3. Record ITC in ledgers with clear mapping to exported supply.

4. Missing documentation may lead to ITC disallowance on audit.

Differential Table – Export vs Domestic Advisory:

Feature	Exported Service	Domestic Advisory Fee
GST Rate	0%	18%
Refund	Yes (LUT/IGST)	No
ITC	Fully claimable	Claimable if linked to export
Place of Supply	Recipient outside India	India

Platform or Intermediary-Based Supply

Scenario: Services routed via Indian platforms (Fiverr India, Upwork India) or intermediaries.

Analytical Treatment:

• Supplier → Platform (India) → Domestic supply → GST 18%

• Platform → Foreign Client → Export → Zero-rated supply

• ITC of GST paid to domestic supplier is claimable if used for exported service

Key Insights:

• Section 14 IGST (Principal Supply) applies → GST classification follows principal supply rules.

• Proper documentation linking domestic service to exported output is mandatory.

• Multi-layer invoicing requires accurate ITC tracking.

Place of Supply and Classification – Minute Detailing

Scenario	Section	Place of Supply	GST Treatment	Refund / ITC
Video editing / digital service → Foreign client	13(2)	Recipient outside India	Zero-rated	Refund claimable; ITC fully claimable
CA / advisory fees → Indian client	2(6)	India	Domestic 18%	Refund not allowed; ITC claimable if linked to export
Domestic intermediary / platform services	14	India	Domestic 18%	ITC claimable if linked to export
Platform → Foreign client	13(2)	Recipient outside India	Zero-rated	Refund claimable; ITC fully claimable

Professional Insights:

• Export classification hinges on recipient location and distinct legal entity.

• Documentation is key: invoices, contracts, and proof of remittance.

• ITC linkage must be auditable to withstand GST scrutiny.

Process & Documentation – Detailed Steps

1. Invoices:

   • Export: Foreign currency, zero-rated, reference LUT/Bond.

   • Domestic advisory: INR, GST 18%.

2. Contracts:

   • Explicitly identify foreign client, scope, and linkage with domestic advisory.

3. Payment Proof:

   • Foreign inward remittance certificates.

   • Domestic payment proof for CA/advisory fees.

4. LUT / IGST Refund Filing:

   • LUT/Bond for zero-rated supply.

   • Refund claim via Form RFD-01 if IGST is paid.

5. ITC Tracking:

   • Maintain detailed ledgers of GST paid on domestic advisory/input services.

   • Explicit mapping to exported services is mandatory.

Risk Triggers and Compliance Safeguards

• Non-convertible currency → Export classification fails → GST liability arises.

• Recipient not distinct → Reclassified as domestic → Zero-rating denied.

• Misclassification of platform services → Refund denial.

• Missing contracts, invoices, or remittance proof → ITC disallowance.

• Domestic advisory fees without linkage → ITC disallowed.

Professional Advisory:

• Maintain complete documentation, including contracts, invoices, bank remittance, and ITC ledger.

• Verify recipient location, entity status, and currency of receipt.

• Ensure LUT/Bond filing prior to export.

FAQs 

Q1: Are remote video editing or digital services exported?
A: Yes, if all Section 2(6) IGST conditions are met and payment is in foreign currency.

Q2: Can GST on CA/advisory fees billed in India be refunded?
A: No, domestic supply → refund not allowed. ITC may be claimed if linked to exported services.

Q3: Does platform invoicing affect export classification?
A: No, recipient location determines zero-rated treatment (Sec 13(2)).

Q4: Can payment in INR qualify as export?
A: Only if RBI-approved; otherwise, must be convertible foreign currency.

Key Takeaways – Ultimate Analytical Insights

• Exported services → Zero-rated GST; full ITC; foreign currency remittance proof essential.

• Domestic advisory / CA fees → GST 18%; no refund; ITC claimable if linked to exported service.

• Platform/intermediary arrangements → Accurate GST classification and ITC mapping essential.

• Documentation → Contracts, invoices, remittance proof, and ITC ledgers are critical.

• Audit Safeguard → Maintain clear linkage between domestic input and exported service.

Key Differentials / Risk Triggers:

• Currency of payment

• Recipient legal entity

• Place of supply (Sec 13(2)/Sec 14 IGST)

• Documentation & proof of payment

• ITC linkage and audit trail

Conclusion

This guidance note is the ultimate reference for professionals, exporters, CAs, and advisory firms. It provides:

• Law-based classification for exports and domestic advisory

• Detailed ITC and refund eligibility analysis

• Platform and intermediary flows

• Minute compliance steps and risk mitigation

• Audit-ready documentation advisory

It is designed to prevent GST defaults, enable zero-rated exports, and ensure professional compliance with maximum clarity.

India’s Entrepreneurial Decade: Founders, Investors, Advisors, and the Future of Innovation

By CA Surekha S Ahuja

 "India is not entering an entrepreneurial decade—it is already living it."

India’s economic landscape is undergoing a structural transformation. Data from LinkedIn, the Economic Survey 2024–25, MSME Ministry reports, and global consultancies like McKinsey, WEF, and Inc42, all confirm that India is shifting from an employment-driven economy to a creator-driven economy. This is not hype; it is empirical, measurable, and irreversible.

Founders at the Heart of India’s Transformation

Founder Identity Surge

• 104% increase in LinkedIn founder profiles from July 2024 to July 2025.

• Founder-tagged profiles have tripled since 2022, showing identity-level entrepreneurship, not opportunistic side hustles.

Rural-Urban Spread

• Self-employed “own account workers/employers” in rural areas rose from 19% → 31.2%.

• Urban regions: 23.7% → 28.5%.

• Entrepreneurship is no longer metro-centric; it is pan-India.

Sectoral Pioneers

• SaaS: $30B revenue by 2025, 8–9% of global market, 75% exports.

• Fintech: 34% growth in exports in 2025, Razorpay and Cashfree expanding internationally.

• DeepTech & SpaceTech: India is 2nd globally in WEF Tech Pioneers 2025.

Success & Failures

• 11,223 startups shut down in 2025 YTD (30% increase).

• This reflects market maturity, competitive correction, and the evolution of sustainable businesses.

Forecasting Trends

• With continued digitization, SaaS, fintech, e-commerce, and climate-tech are expected to dominate the next 5–10 years.

• Consumerism is rising, digital payments and subscriptions are growing 18–22% annually.

Investors and Advisors: Navigating Complexity

Investors must factor in:

• Multiple revenue streams, offshore entities, and emerging sectors.

• ESG and social impact investments are gaining importance.

Advisors must navigate:

• Regulatory frameworks: FEMA, FDI, IFSCA, Startup India benefits.

• Financial literacy gaps: 58% of self-employed Indians lack structured tax planning.

• Cross-border implications: ESOPs, international exits, and global compliance.

Policy and Advisory Imperative

• Advisors and investors play a critical role in helping founders scale sustainably.

• Early-stage guidance reduces closure risks and accelerates innovation adoption.

Women as Catalysts

While the focus here is founders, investors, and advisors, women remain a transformative force:

• Women-led MSMEs grew from 1 crore → 1.92 crore (2010–2024).

• Female entrepreneurship adds resilience, focus, and a practical approach to business.

• Government schemes like PMEGP have increased women’s participation 43% YoY.

Women-led startups contribute to diverse leadership, inclusive growth, and innovative solutions.

Policy, Government, and Revenue Departments: Handholding vs Hindrance

India’s government has provided strong policy support:

• Startup India Seed Fund: ₹945 crore

• Fund of Funds: ₹10,000 crore

• 3-year tax holiday under Sec 80-IAC: 3,700+ startups approved

The Recommendation:
Revenue departments and policymakers should prioritize handholding, facilitation, and ecosystem-building over procedural policing or self-interest. Startups should be empowered to scale, innovate, and generate long-term employment and GDP growth.

Practical impact:

• Reduced compliance friction → more startups survive early years.

• Easier access to capital and global markets → faster scaling.

• India’s global attractiveness increases → more unicorns and innovation exports.

Infrastructural & Technological Enablers

Digitization and Consumerism:

• Unified government portals (GST, MCA, startup recognition) reduce friction.

• Mobile-first and SaaS tools allow entrepreneurs anywhere to compete globally.

• Increasing consumer awareness drives demand for innovative products and services.

Urban & Rural Infrastructure:

• Improved logistics, e-commerce penetration, and last-mile delivery enable pan-India market access.

• Rural digitization accelerates entrepreneurial participation and financial inclusion.

Global Trends and India’s Competitive Edge

Indian Founders Abroad:

• 109 unicorns founded by Indians outside India vs 67 in India.

• Top countries: USA (95), UK (4), Singapore (3), Germany (2).

Why Global Moves Happen:

• Tax structure differences

• Regulatory clarity and investor preference

• Predictable exits and repatriation

India’s Response:

• GIFT IFSC enables global-first founders with banking, tax, and fund hosting.

• India is gradually becoming attractive for returning founders.

Forecast:

• By 2030, India could host 200+ domestic unicorns with global expansion, adding 150–170 million jobs through women-led and youth-led startups.

The Road Ahead: Opportunities and Emerging Avenues

• DeepTech & SpaceTech: Satellite services, defense tech, AI-powered aerospace.

• ClimateTech & Sustainability: Green energy, electric mobility, carbon management.

• Healthcare & EdTech: Personalized medicine, AI-based learning platforms.

• Consumer Tech: Lifestyle subscriptions, direct-to-consumer brands, digital entertainment.

Key Insight: Entrepreneurship is evolving in response to changing consumer behavior, digitization, and global opportunities. India’s ecosystem is maturing—founders, investors, and advisors need foresight and strategic guidance.

Conclusion: India’s Entrepreneurial Decade Is Here

Every data point—from LinkedIn founder profiles to SaaS unicorns—tells the same story: India is not following global norms; it is rewriting them.

Key Takeaways for Stakeholders:

• Founders: Innovate, scale, and embrace global-first thinking.

• Investors: Support long-term sustainable growth with sectoral foresight.

• Advisors: Navigate complex regulation, guide compliance, and foster financial literacy.

• Policymakers: Handhold, facilitate, and empower startups to create employment and global impact.

India’s entrepreneurial wave is structural, irreversible, and transformative. The next decade will define India as a global epicenter of innovation, creation, and leadership.

"Every founder, investor, and advisor today is shaping the India of tomorrow."

GST Classification and Taxability Framework for Veterinary and Pet-Care Service Providers

A Professional Guidance Note for Clinics, Hospitals, Boarding Facilities, Grooming Centres, Training Providers, Retail Stores, and Integrated Pet-Care Chains

By CA Surekha S Ahuja

Introduction: The GST Challenge in Veterinary Ecosystems

Veterinary service providers today operate in a hybrid ecosystem that includes medical healthcare, grooming, wellness, lodging, training, physiotherapy, behavioural services, retail of pet goods, sale of live animals, and ancillary services. GST classification disputes frequently arise because the legislation provides a blanket exemption only to healthcare, leaving all non-medical activities squarely taxable.

The purpose of this guidance note is to provide a complete, authoritative, and defensible GST framework covering classification, SAC coding, tax rates, boundary identification, documentation, invoicing design, ITC optimisation, and audit risk management. This advisory consolidates the entire legal, practical, and technical landscape applicable in 2025–26.

Statutory Foundation: Healthcare Exemption for Veterinary Services

Under Entry 46 of Notification No. 12/2017 – Central Tax (Rate), “services by a veterinary clinic in relation to health care of animals or birds” are fully exempt from GST.

This exemption is broad but strictly limited to diagnosis, treatment, preventive medical procedures, surgical care, inpatient care, and post-operative services, including any intervention rooted in therapeutic intent.

To fall under the exemption, the service must satisfy three elements:

1. Clinical Assessment – The service should originate from or be supported by a veterinary assessment or documented clinical need.

2. Diagnostic or Therapeutic Purpose – The objective must relate to medical restoration, healing, recovery, or disease prevention.

3. Veterinarian-Led Delivery – The intervention must be either performed or directed by a qualified veterinary professional.

This legal foundation forms the guiding lens for classification throughout this note.

Comprehensive SAC and Taxability Classification

A. Exempt Veterinary Healthcare Services (SAC 9993 Series)

These services fall unequivocally under the exemption when adequately supported by clinical documentation.

Service Type	SAC	GST Rate	Key Requirements
Clinical consultation, physical examination	999311	Exempt	Clinical findings recorded
Diagnostic services (laboratory, imaging, pathology, ultrasound)	999312	Exempt	Diagnostic order and report
Surgeries including implants and anaesthesia	999313	Exempt	Operative notes and implant specifications
Hospitalisation and inpatient care	999321	Exempt	Admission/discharge notes
Post-operative treatment and medical physiotherapy	999391	Exempt	Treatment schedule and vet prescription
Emergency and critical care	999399	Exempt	Emergency assessment

Boundary logic: The presence of clinical documentation is the decisive element.

B. Grooming and Cosmetic Services (SAC 998612 at 18%)

Cosmetic grooming, aesthetic procedures, routine ear cleaning, bathing, hair trimming, styling, and de-shedding are fully taxable.

Tax shift rule:
If the grooming is medically indicated (parasite removal, wound dressing, dermatitis care), supported by vet notes, the service moves to SAC 999312 (Exempt).

C. Boarding, Lodging, and Day-care (SAC 996311 at 18%)

Boarding and lodging services are taxable when they are custodial, hospitality-based, or comfort-oriented.

However, medical boarding—i.e., boarding required post-surgery, during recovery, or as part of a treatment plan—falls under SAC 9993, and is exempt.

D. Behavioural Training, Obedience Schooling, Fitness and Agility Coaching (SAC 999799 at 18%)

These services are fully taxable unless they form part of a prescribed medical rehabilitation plan, in which case the service shifts to 999391 (Exempt).

E. Retail Sale of Goods (HSN-Based Taxability)

Where a veterinary business operates a retail counter or online store, the classification shifts to HSN-based taxation.

Goods Category	HSN	GST Rate
Pet food including wet, dry, treats	2309	18%
Veterinary medicines	3003/3004	5% or 12%
Pet accessories (collars, harnesses, beds, leashes, cages, toys, grooming equipment)	4201/4202/Other relevant HSN	18%
Nutraceuticals and supplements	Relevant HSN	12% or 18%

F. Sale of Live Animals

Type	HSN	Indicative Rate	Notes
Livestock (bovine, ovine, caprine, equine, poultry, fish)	0101–0106	Exempt or 5%	Species-specific
Pets (dogs, cats, ornamental fish, exotic pets)	0106	Typically 18%	Depends on species, breeding nature, notifications
Commercial pet store sales	0106	Usually 18%	Treated as supply of goods

The seller must ensure classification accuracy as misclassification of exotic animals attracts heightened scrutiny.

Classification Framework: Medical vs. Non-Medical Determination

Core Analytical Test: Clinical Documentation Test

A service is exempt only when clinical records support diagnostic or therapeutic intent. In the absence of documentation, the transaction defaults to taxable.

Additional Boundary Tests

• Purpose Test – Is the service medically required or cosmetic?
• Skill Requirement Test – Can a non-veterinarian perform it?
• Outcome Test – Does it restore health or improve appearance?
• Bundling Test – Is it naturally bundled with medical care?

This multi-layered test ensures defensible classification during audits.

Billing Structure: The Five-Invoice Model for Clean Segregation

To avoid composite supply disputes and maintain audit clarity, the following model is recommended:

1. Healthcare Invoice – Exempt; SAC 9993 series

2. Grooming Invoice – Taxable; SAC 998612

3. Training Invoice – Taxable; SAC 999799

4. Boarding Invoice – Taxable; SAC 996311 (unless medical)

5. Retail Invoice – Goods; relevant HSN

6. Sale of Live Animals – Goods; HSN 0106 series

Segregation ensures correct GSTR-1 mapping and prevents misclassification.

ITC Treatment for Mixed Operations

Where a veterinary business supplies both exempt (healthcare) and taxable (grooming, retail, boarding, training) services, ITC must be apportioned under Rules 42 and 43.

A. Monthly Rule 42 Formula

Eligible ITC = Total common ITC × (Taxable turnover ÷ Total turnover)

Example:
• Total revenue: ₹5,00,000
• Taxable revenue: 40 percent
• Eligible proportion of common ITC: 40 percent
• Remaining ITC reversed in GSTR-3B under Table 4(B)(2)

B. Capital Goods (Rule 43)

Capital goods used in both divisions (e.g., ultrasound machine, X-ray equipment) require proportional ITC reversal over 60 months.

Documentation and Compliance Requirements

For exempt healthcare services

• Examination notes
• Diagnostic orders and results
• Surgical and anesthesia records
• Discharge summaries
• Treatment plans
• Evidence of medical necessity for physiotherapy or boarding

For taxable services

• Detailed grooming and boarding registers
• Training logs
• Material consumption registers
• SAC mapping registers
• Clear separation between staff performing medical vs non-medical tasks

Return and Reconciliation Requirements

• Monthly reconciliation between GSTR-1, GSTR-3B, books, and e-invoices
• Turnover bifurcation ledger
• Exempt and taxable summary sheets
• Annual return mapping

Recommended Business Organisation Model

A two-division model offers the highest compliance efficiency.

Division A: Veterinary Healthcare (Exempt)

Purely therapeutic operations. No ITC claim.

Division B: Wellness, Grooming, Training, Boarding, Retail (Taxable)

Attracts 18 percent GST and offers full ITC credit.

Benefits:
• Zero risk of exemption disputes
• Optimised ITC
• Simplified accounting
• Clear business segmentation
• Strong audit defensibility

Quick Reference Summary Table

Category	SAC/HSN	GST Rate	Classification Principle
Veterinary healthcare	9993 series	Exempt	Clinical documentation required
Grooming	998612	18%	Cosmetic unless medically prescribed
Boarding	996311	18%	Medical boarding exempt
Training	999799	18%	Rehabilitation therapy exempt
Retail	Relevant HSN	5–18%	Goods classification
Live animals	0101–0106	Exempt–18%	Species-specific

Conclusion

The veterinary sector sits at the intersection of exempt healthcare and taxable wellness services, making accurate GST classification essential for risk mitigation, pricing strategy, and operational efficiency. This guidance note provides a complete framework that integrates statutory interpretation, SAC classification, ITC rules, practical billing methodology, and documentation discipline into a single, comprehensive compliance model.

Veterinary service providers that implement the layered classification tests, maintain disciplined documentation, and adopt the five-invoice structure can operate with confidence, reduced audit exposure, and optimal tax efficiency.

Foreign Asset Disclosure in ITR – AY 2025–26

Professional Compliance, Risk Analysis, and Practical Guidance
By CA Surekha S Ahuja

Introduction: The Compliance Imperative

In today’s interconnected financial world, foreign assets are fully traceable. India participates in CRS and FATCA, enabling the Income Tax Department to receive verified data from hundreds of jurisdictions.

For AY 2025–26, the Department has identified high-risk cases where foreign assets are not reported in ITRs. SMS and email alerts have been sent to taxpayers, who now have until 31 December 2025 to revise returns or face penalties.

This note provides a comprehensive professional guide, covering law, intent, enforcement, penalties, risks, and procedural solutions, including revised ITR for AY 2025–26 and ITR-U for earlier years.

Legal Framework: Statutory Obligations

• Income-tax Act, 1961

  • Section 139(1): Requires all ROR taxpayers to disclose all foreign assets in Schedule FA.

  • Section 149: Reopening of assessments for foreign matters up to 16 years.

  • Rule 12 & ITR Forms: Specify reporting format and timeline.

• Black Money (Undisclosed Foreign Income & Assets) Act, 2015 (BMA)

  • Tax: 30% of asset value

  • Penalty: 90% of asset value

  • Prosecution: Up to 10 years

  • Applies even to historic assets or if foreign tax has been paid.

• CRS & FATCA Data Exchange

  • Annual sharing of bank accounts, investments, pensions, insurance, trusts, and entities.

  • Automatic cross-verification with ITR filings.

  • Non-disclosure flags high-risk cases.

Key Principle: Any foreign asset over which the taxpayer has ownership, control, or beneficial interest must be disclosed.

Legislative Intent: Purpose Behind Disclosure

1. Prevent Offshore Tax Evasion: Identify undisclosed accounts, layered investments, and untaxed foreign income.

2. Encourage Voluntary Compliance: Early correction reduces penalties and prosecution risk.

3. Align with Global Norms: CRS and FATCA obligations require domestic transparency.

Scope of Schedule FA: What to Disclose

• Bank Accounts: Active, dormant, joint, inherited, closed

• Investments: Foreign equities, bonds, mutual funds, ETFs, RSUs/ESOPs

• Insurance & Retirement Funds: 401(k), IRA, superannuation, foreign pensions

• Business/Entity Interests: Foreign companies, partnerships, trusts (all roles)

• Property Abroad: Residential, commercial, direct, or indirect

• Digital/Crypto Assets: Foreign wallets, exchanges

• Other Rights: Royalties, IP income, nominee accounts

Rule of Thumb: If the asset exists outside India and provides financial benefit, it must be disclosed.

Current Enforcement: AY 2025–26 Posture

• High-Risk Identification: AI-driven matching of foreign asset data vs. Schedule FA.

• SMS/Email Nudges: Alert taxpayers to revise ITRs by 31 December 2025.

• Past Year Performance: 24,678 taxpayers revised returns, disclosing ₹29,208 crore in assets and ₹1,089.88 crore in foreign-source income.

• Frequently Affected Groups: Senior citizens, retired NRIs, parents with joint accounts, RSU/ESOP holders.

Voluntary revision now avoids presumptions of concealment.

Consequences of Non-Disclosure

Income-tax Act

• Reopening under Section 149

• Penalty under Section 270A (200% of under-reported tax)

• Prosecution under Sections 276C/277

Black Money Act

• Tax: 30% of asset value

• Penalty: 90% of asset value

• Combined: 120% of asset value

• Prosecution: Up to 10 years

• Confiscation possible

Additional Risks: PAN flagged high-risk, restricted remittances, FEMA scrutiny, loss of treaty benefits, reputational and financial risk.

Procedural Solutions: Corrective Measures

1. Audit All Foreign Assets: Bank accounts, ESOPs, pensions, trusts, property.

2. Reconcile with Schedule FA: Confirm balances, ownership, and foreign-source income.

3. File Revised or Updated ITR:

   • AY 2025–26: File a revised ITR before 31 December 2025.

   • Earlier two years: Use ITR-U (Updated ITR) to report previously undisclosed foreign assets.

4. Maintain Documentation: Bank statements, acquisition proofs, foreign taxes paid, valuations.

5. Respond Promptly to Notices: Address SMS/email alerts professionally.

6. Seek Expert Guidance: Complex assets like trusts, RSUs, crypto, and cross-border investments require professional interpretation.

Foreign Asset Disclosure Checklist

• ✔ Bank accounts (active, dormant, joint, closed)

• ✔ Brokerage/custodial accounts, RSUs/ESOPs

• ✔ Foreign shares, ETFs, bonds

• ✔ Overseas property (residential/commercial)

• ✔ Foreign entities, trusts, partnerships

• ✔ Insurance and retirement funds

• ✔ Crypto or digital assets abroad

• ✔ Foreign royalties, IP income, nominee accounts

Guiding Principle: When in doubt, disclose it.

Conclusion: Transparency as Protection

Foreign asset disclosure is no longer a formality—it is financial self-protection.

Proactive, accurate, and well-documented disclosure ensures compliance, preserves legacy, and mitigates severe penalties.

“What you voluntarily disclose today will always cost less than what the system discovers tomorrow.”

For AY 2025–26, revision and professional documentation are critical, while earlier years can be regularized using ITR-U, ensuring full compliance and minimizing enforcement risk.