Expenditure Tax

The Expenditure Tax Act governs all the taxation related to the chargeable expenditure incurred by an individual in restaurants and hotels. This is applicable in restaurants and in hotels where the room rent is Rs.3,000 or higher.

The Expenditure Tax Act, 1987

The Expenditure Tax Act of 1987 is an act that governs all taxation-related processes associated with the chargeable expenditure that an individual incurs in certain hotels or restaurants.

This act will charge to tax “chargeable expenditure” provided these two criteria are fulfilled:
  • The charges are incurred in a hotel where the room rent is Rs.3,000 (per day), or more.
  • The charges are incurred in a restaurant.

It should be noted that in the case of room rent charges in hotels, the Assessing Officer of the Income Tax Department has the power and freedom to deem whether the breakup of charges has been mentioned in the correct manner.

Other respective charges such as those for food, drinks, and other services cannot be used to cover up the actual charge of the room rental, etc. If there are discrepancies in this regard, the Assessing Officer will decide on what amounts need to be charged under the various headings in the itemized breakup of the bill.

Meanings of Chargeable Expenditure

Under the Expenditure Tax Act, 1961:

“Chargeable expenditure” refers to and includes any payment made to (or expenditure incurred in) the hotel which is connected to the provision of:
  • Accommodation (residential, or otherwise).
  • Accommodation in the hotel on hire or lease.
“Chargeable expenditure” does not include:
  • Payments made (expenditures incurred) in foreign exchange (before the 1st of October, 1992).
  • Payments made (expenditures incurred) by anyone within the purview of the Vienna Convention on Diplomatic Relations, 1961 or the Vienna Convention on Consular Relations, 1963.
  • Payments made (expenditures incurred) in any shop / office which is not owned or managed by the person who carries on the business of a hotel.
  • Expenditures incurred by way of taxation under any act, including this one.
  • Any expenditure incurred (payments made) in Indian currency that was acquired on the conversion of foreign exchange into Indian currency will (in these cases and circumstances only)

Values of Taxation under the Expenditure Tax Act, 1961

Under the Expenditure Tax Act, 1961, tax is charged as:

  • 10% of the charges incurred (payments made) at a hotel.
  • 15% of the charges incurred (payments made) at a restaurant.

Collection of Expenditure Tax

  • Expenditure Tax is collected from the person running the business (hotel and/or restaurant) as the case may be, when he or she provides the services that are result in “chargeable expenditure”.
  • Expenditure Tax is collected at the rate of 15% from restaurants when it renders services deemed taxable.

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