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Luxury Tax in India

What is Luxury Tax?

The word ‘Luxury’, as per the Luxury Tax Act, has been defined as a good or service that aims at offering comfort to an individual paying for it. The implementation of the Goods and Services Tax (GST) has streamlined the taxation system by riding the previous tax regime of repeatedly levying the same indirect taxes at every step across the supply chain.

The new taxation system, which has unified the calculation of taxes, has categorised Luxury Tax under the highest tax bracket of 28% for luxury goods and services priced over Rs. 7,500, 18% for those priced between Rs. 2,500 to Rs. 7,500, 12% for those priced between Rs. 1,000 to Rs. 2,500. Luxury Tax is not applicable on products and services priced below Rs. 1,000.

The new taxation system clearly defines the products and services that are classified under the luxury category, namely hotels, restaurants, health clubs, spas, beauty parlours, swimming pool, etc.

Luxury Tax Rate

The implementation of GST clearly defines the goods and services that are classified under the ‘luxury items’ category. It has also laid down the tax slab rate to be levied on such goods and services as per their prices, as mentioned in the table below. There are also other parameters that decide the tax slab which will be applicable. For instance, the annual turnover of the business providing luxury goods and services, amenities offered like air-conditioned or non-air-conditioned, among other factors.

Here is a list of approximate Luxury Tax rates levied by hotels and restaurants. However, these rates vary between states and Union Territories:

Room Tariff per Night Luxury Tax Rate
< Rs. 1,000No tax applicable
> Rs. 1,000 but < Rs. 2,50012%
> Rs. 2,500 but < Rs. 7,50018%
>Rs. 7,50028%

Below are the Luxury Tax rates levied by hotels and restaurants in India, based on certain parameters:

  • Restaurants with a turnover of less than Rs. 50 lakhs will levy a luxury tax of 5%.
  • Non-AC restaurants levy luxury tax at the rate of 12%.
  • AC restaurants levy the tax at the rate of 18%.
  • 5-star restaurants will have to impose a luxury tax of 28%.

The following are the services provided by hotels and restaurants that attract Luxury Tax:

  • Services provided to the members of a club like charges, fees, deposit, donation or any other charges as mandated by the State.
  • Services offered by hotels to their residents.
  • Hotel residents or restaurant customers availing services at in-house gymnasiums, swimming pools, health clubs, spas, beauty parlours, business conference halls, wedding banquet halls, etc.

The Purpose of Luxury Tax

The implementation of Goods and Services Tax (GST) has overhauled and revamped the previous indirect tax regime, eliminating the multiple taxation system. It has also made the taxation system systematic and seamless by ridding the process of filing commercial taxes, including luxury tax, every month or on a quarterly basis. Luxury Tax in India has to be paid by the last date of the month succeeding the assessment month, streamlining and organising the taxation process.

The new taxation system clearly defines the products and services that are classified under the luxury category, namely hotels, restaurants, health clubs, spas, beauty parlours, swimming pool, etc.

Luxury Tax Returns Filing

Commercial Taxes Department or the Excise Department is generally authorised to preside over and oversee the collection of Luxury Tax in all the states in India. These departments are further categorised into different departments in every state to execute the process of imposition and collection of Luxury Tax – VAT, Service Tax, Entertainment Tax, in an organised way.

These departments have improvised on their functionalities in alignment to their set responsibilities. The departments in every state have their independent websites and other channels through which residents of that state can access the necessary form and register their business or themselves. The registration process enables the individual or business owner to pay luxury taxes as applicable to them.

Post the implementation of GST, several indirect taxes has been unified, simplifying the taxation process. Unlike the process of filing commercial taxes, including luxury taxes, every month or on a quarterly basis, GST has standardised the taxation process. The procedure and dates of filing GST is the same for all industries throughout India. Luxury Tax in India has to be paid by the last date of the month succeeding the assessment month.

Frequently Asked Questions

What is the current rate for Luxury Tax on goods and services priced between Rs. 2,500 to Rs. 7,500?

After the implementation of the Goods and Services Tax (GST), Luxury Tax on luxury goods and services are taxed at 18%.

What is the current rate for Luxury Tax on goods and services priced between Rs. 1,000 to Rs. 2,500?

After the implementation of the Goods and Services Tax (GST), Luxury Tax on luxury goods and services are taxed at 12%.

What is the current rate for Luxury Tax on goods and services priced over Rs. 7,500?

After the implementation of the Goods and Services Tax (GST), Luxury Tax on luxury products and services are taxed at 28%.

What is the Luxury Tax levied on goods and services below Rs. 1,000?

No tax is applicable on products and services priced below Rs. 1,000.

What are the services that attract Luxury Tax after the implementation of GST?

Below are the services on which Luxury Tax becomes applicable after the implementation of the Goods and Services Tax:

  • Services offered to the members of a club like charges, donation, deposit or any other charges as mandated by the India state where the service is provided.
  • Services offered by hotels to their in-house residents.
  • Hotel residents or restaurant customers availing services at in-house spas, gymnasiums, health clubs, swimming pools, beauty parlours, business conference halls, wedding banquet halls, etc.

What is the applicable Luxury Tax in India for restaurants with an annual turnover of Rs. 50 lakhs?

Restaurants with a turnover of less than Rs. 50 lakhs will levy a luxury tax of 5%.

What is the Luxury Tax rate levied by non-AC restaurants as per the GST regime?

The Luxury Tax in India levied by non-AC restaurants, as applicable under the GST Act, is 12%.

What is the Luxury Tax in India levied by AC restaurants?

The rate for Luxury Tax in India levied by AC restaurants is 18%.

What is the Luxury Tax in India applicable for 5-star restaurants?

As per the GST taxation system, the Luxury Tax in India levied by 5-star restaurants is 28%.

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