The taxation system in India is uniquely structured compared to other countries. From purchasing goods to earning income, taxes are applicable. Among these is the luxury tax, a charge on the acquisition or use of luxury goods and services.
In India, luxury tax payment isn't typically separate; it's included in luxury product or service prices. Here's a closer look at when and why this tax was introduced in India, and which items are taxed. But first, let's explore what luxury tax actually means.
What is Luxury Tax?
Luxury tax is an indirect fee primarily placed on services offered by hotels, spas, and resorts. It doesn't apply to food and drink services at these establishments. Simply put, if you're utilizing luxury accommodations like hotels or spas, you're liable to pay a luxury tax.
According to the Luxury Tax Act, 'luxury' refers to services or products that enhance comfort, enjoyment, or pleasure in one's life. Even if an individual does not desire such luxuries, they must pay the applicable tax under the Luxury Tax Act and state luxury tax rates.
For instance, if you're visiting Rajasthan and choose to stay at a hotel or resort, luxury tax is added to the room tariff. A 10% annual tax applies to rentals between ₹500 and ₹1000. If the room rate exceeds ₹1000 per day, the tax increases to 12.5% annually.
Source: aajtak
How Much is the Luxury Tax?
As of July 1, 2017, luxury tax fell under the Goods and Services Tax (GST) category, placed in the highest GST slab at 28%. However, each state implements its tax, which is part of GST. State commercial or excise departments generally collect this tax.
Under the GST regime, the GST Council specifies different tax slabs for hotels and restaurants based on turnover and AC or non-AC status. This means customers pay less or more depending on the type of establishment they choose.
In Delhi, luxury tax rates can be 5% or 10%, depending on room tariffs, which range from ₹750 upwards. Facilities like health clubs, spas, and gyms are subject to a 3% annual tax.
In Goa, rooms priced at ₹500 or below per night enjoy a luxury tax exemption. Those between ₹500 and ₹2000 incur a 5% annual tax. If the room rate exceeds ₹2000 but stays under ₹5000, the tax is 8% yearly. Tariffs over ₹5000 face up to a 12% tax.
In Karnataka, rooms costing between ₹500 and ₹1000 per night carry a 4% tax. Rooms from ₹1000 to ₹2000 face an 8% tax, while anything above ₹2000 incurs a 12% tax.
In Rajasthan (except heritage hotels), luxury hotels attract a 10% luxury tax. If costs exceed ₹3001 per day, the tax stands at 8%.
In Tamil Nadu, rooms charging ₹200 to ₹500 have a 5% tax. A 10% tax applies to tariffs from ₹500 to ₹1000. Rates above ₹1000 per day face a 12.5% annual tax.
What is the History of Luxury Tax?
India began imposing luxury tax in 1996 to generate revenue from the hospitality industry. Initially, this tax targeted luxury hotels and resorts offering services to affluent clientele. It later extended to all forms of hospitality services. In 2009, a uniform 12.5% tax on hotel lodging fees aimed to simplify the system, later incorporated under GST.
Where is Luxury Tax Implemented?
Luxury tax covers services like club membership fees, charges, donations, or any additional state-mandated levy, as well as hotel services offered to customers, use of spas, beauty parlors, health clubs, and swimming pools.
