You do not have to pay luxury tax separately, but it is included in luxury products or services. Let us know when and why this tax was introduced in India and on which things is it imposed?
Luxury Tax: The tax system in India is completely different from other countries. Tax has to be paid on everything from purchasing anything to income. However, different types of tax charges are levied on the purchase of goods. One of these is Luxury Tax, which is levied on the purchase of luxury items or the use of luxury services.
You do not have to pay luxury tax separately, but it is included in luxury products or services. Let us know when and why this tax started in India and on which things is it levied? However, before that let us talk about what is luxury tax.
What is luxury tax?
Luxury tax is an indirect tax, which is especially levied on the services provided in hotels, spas and resorts. This tax does not apply to food and drinks provided in hotels and other places. To put it in simpler terms, if you are using any luxury facility like hotels, spas and other accommodations, then you will have to pay luxury tax.
According to the Luxury Tax Act, ‘luxury’ means a service or product that is provided to bring comfort, pleasure or happiness to a person’s life. Even if the person does not like that thing, he has to pay the corresponding tax as per the Luxury Tax Act and the state luxury tax rate.
Example- Suppose you went to visit Rajasthan and you want to stay in a hotel or resort, then luxury tax will be levied on the hotel room rent there. 10% annual luxury tax is levied on rent ranging from Rs 500 to Rs 1000. If the room rent is more than Rs 1000 per day, then the luxury tax becomes 12.5% per annum.
How much is luxury tax?
From July 1, 2017, luxury tax was included in the Goods and Services Tax (GST) and luxury items were put in the highest tax slab of 28% of GST. But luxury tax is applied differently in different states, which comes under GST. However, the collection of this tax is done by the state’s commerce department or excise department.
Under the GST system, the GST Council has introduced different tax slabs for hotels and restaurants based on their turnover and considering the criteria of air conditioning or non-air conditioning. This means that now consumers will have to pay more or less depending on the type of restaurant they go to.
- In Delhi, the luxury tax rates can be 5% or 10%, depending on the room rent, which ranges from Rs 750 to above. Facilities like health clubs, spas and gyms are taxed at a luxury tax rate of 3% per annum.
- In Goa, rooms with rent equal to or less than Rs 500 per night are exempted from luxury tax. Rooms with rents above Rs 500 but within Rs 2000 are taxed at a luxury tax rate of 5% per annum. When the rent exceeds Rs 2000 but is less than Rs 5000, the luxury tax is 8% per annum. Rents above Rs 5000 per night attract a maximum luxury tax of 12%.
- Karnataka levies a 4% luxury tax on rooms with a rent of Rs 500 to Rs 1000 per night, 8% luxury tax on rooms with a rent of Rs 1000 to Rs 2000 and 12% luxury tax on any room above Rs 2000 per night.
- Rajasthan levies a 10% luxury tax on hotels (except heritage hotels), grand hotels. If the cost of luxury is Rs 3001 per day, then this tax is levied at the rate of 8%.
- Tamil Nadu levies a 5% luxury tax on room rents between Rs 200 and Rs 500. 10% luxury tax is levied on rooms between Rs 500 and Rs 1000. If the room rent is more than Rs 1000 per day, then the luxury tax is 12.5% per annum.
Why is luxury tax levied? Full history
Luxury tax in India was introduced in 1996 to raise revenue from the hospitality industry. Initially, this tax was targeted at luxury hotels and resorts providing services to high-income people. But later it was implemented on all types of hospitality services. In 2009, the government introduced a uniform tax rate of 12.5% on hotel accommodation charges, aimed at simplifying the tax system. Later it was included under GST.
On which things luxury tax is applicable?
Services provided to club members such as deposit money, charges, donations or any other fee mandated by the state, services provided by hotels to their customers, services like spa, beauty parlor, health club, swimming pool etc. are taxable for luxury tax.
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