Luxury Tax

Updated: Aug 27, 2021

Content

Luxury Tax | Purpose | Applicability | Tax Rate | Filing


What Is Luxury Tax?

According to the Luxury Tax Act, luxury is described as a good or service that seeks to provide comfort to the person who pays for it. Few years ago, the hotel bill used to have a charge labelled "luxury tax." However, those terms are no longer used with such receipts. The implementation of the goods and services tax (GST) in 2017 altered the indirect taxation environment in India. It has absorbed the luxury tax as well as a variety of other taxes. By relying on the former tax regime of continuously levying the same indirect taxes at any level through the supply chain, the Goods and Services Tax (GST) has simplified the taxation mechanism.

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It can be inconvenient when you have to pay something other than the real cost like paying additional charges for a room rate at check-out. The term "luxury" refers to a service or product that improves one's convenience, happiness or pleasure. However, regardless of your hotel experience, you must pay the costs for the 'luxury' you got.

It's important to note that such 'luxury' just applies to the room you live in or the actual cost of your stay. Food and drinks, as well as other special service costs, are not allowed to be taken into this list. To put it another way, only the accommodation is subject to taxation.


Previously, the luxury tax was not strictly under the control of the central government. It was different in each state.

In India's tax system, the definition of luxury has always been difficult to define. It's subjective and relative. After all, what one person considers a necessity can be considered a privilege by another. However, since the implementation of GST, ‘luxury goods' have been included in the highest tax category, with a rate of 28 percent.


Luxury Tax is classified in the maximum tax bracket of 28 percent for luxury goods and services priced above Rs. 7,500, 18 percent for those priced between Rs. 2,500 - Rs. 7,500, and 12 percent for those priced between Rs. 1,000 - Rs. 2,500 under the current taxation scheme, which has unified the measurement of taxes. The luxury tax does not apply on goods and services that cost less than Rs. 1,000.


The modern taxing scheme specifically describes the goods and facilities that are categorised as luxurious, such as hotels, bars, fitness clubs, spas, beauty salons, swimming pools and other similar establishments.

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Tax Slabs In India


Luxury Tax Rate

The introduction of GST has specifically defined the products and services that fall under the category of "luxury objects." It has also defined the tax slab rate that will be applied to such goods and services based on their costs, as seen in the table below.

Other factors also play a role in determining the tax slab that will be applied. For example, the annual turnover of a company that provides premium goods and services, as well as facilities such as air conditioning or non-air conditioning, are all important considerations.


The following is a list of the approximate Luxury Tax rates that hotels and restaurants charge. These rates, however, differ between states and union territories:

Luxury Hotel

Based on certain criteria, the Luxury Tax rates imposed by hotels and restaurants in India are listed below:

  • A 5% luxury tax will be imposed on restaurants with a turnover of less than Rs. 50 lakhs.

  • A 12% luxury tax is imposed on non-air-conditioned restaurants.

  • The tax is levied at an 18% rate in AC restaurants.

  • 5-star restaurants would be required to charge a luxury tax of 28%.

Luxury Lifestyle

Applicability

A luxury tax is levied on high-end goods and services. This form of tax applies to all goods and services. What do you consider to be a luxury item? Luxurious automobiles, jewellery, and high-priced hotel rooms are examples of consumer luxury. It's really very simple—these are things that aren't deemed important. These are subject to the luxury levy. Taxes are levied by restaurants, spas, and resorts for the facilities they offer. Previously, the tax rates on these programmes varied from state to state under the old tax scheme. However, under the GST, the rates have been uniform throughout India. They fall into various tax brackets based on their prices. This increases the cost of using goods and services across those price ranges.


The below are the facilities that hotels and restaurants offer that are subject to the Luxury Tax:

  • Charges, fines, deposits, donations, and all other charges mandated by the state are given to club members.

  • Hotel guests are provided with a variety of services.

  • Hotel guests or restaurant patrons using in-house gyms, swimming baths, fitness clubs, spas, beauty salons, corporate meeting rooms, wedding banquet halls, and other facilities.

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Purpose

The Goods and Services Tax (GST) has completely overhauled and redesigned under the former indirect tax scheme, removing the multiple taxation system. It has also made the taxation system more comprehensive and efficient by eliminating the need to file commercial taxes, such as the luxury tax, on a monthly or quarterly basis. In India, luxury tax must be charged by the last day of the month after the appraisal month, simplifying and organising the taxation process.


The modern taxing scheme specifically describes the goods and facilities that are categorised as luxurious, such as hotels, bars, fitness clubs, spas, beauty salons, swimming pools and other similar establishments.


Return Filing

The Excise Department, also known as the Commercial Taxes Department, is usually authorised to preside over and oversee the collection of Luxury Tax in all Indian states. These departments are further divided into various departments in each state to ensure that the imposition and collection of Luxury Taxes – VAT, Service Tax, and Entertainment Tax – is carried out in a systematic manner.


These divisions also improved their operational capabilities in accordance with their assigned duties. Each and every state's department has its own website and other outlets by which residents can access the required form and register their company or themselves. The registration process allows a person or a business owner to pay the appropriate luxury taxes.


Several indirect taxes have been consolidated as a result of the introduction of GST, simplifying the taxation process. GST has standardised the taxation procedure, unlike the process of filing commercial taxes, including luxury taxes, every month or quarterly. For all sectors in India, the protocol and deadlines for filing GST are the same.


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References


“Luxury Tax in India: The Purpose and Rate of Luxury Tax Returns Filing.” Coverfox Insurance, www.coverfox.com/personal-finance/tax/luxury-tax-in-india/ . Accessed 7 May 2021.


Kannan, Sandhya. “Luxury Tax in India.” Kotak Securities®, www.kotaksecurities.com/ksweb/income-tax/luxury-tax-in-india.


Beware OF The All Time High Luxury Tax In India. The Additional Cost Of A Luxury Lifestyle. Must Find Out Tax Slabs In India. Do Know The Luxury Tax % On Luxury Hotel Stay. Checkout Delhi Royale Luxury Lifestyle Blog https://www.delhiroyale.in/luxury-lifestyle-blog