Financial systems around the world charge taxes on national and international residents for the use of services, conduction of business, engagement in profession and the like. India is no stranger to the concept of taxation. Moreover, India follows a system of taxation that is one of the most detailed in the world. Apart from income tax, sales tax and a variety of other standardised taxes, there are a couple of convenience taxes which are charged in India depending upon the services availed or goods bought at particular businesses. Among Service Tax, Value Added Tax and Service Charge, Luxury Tax also forms a part of many bills. Luxury tax can mostly be seen in the usage bills of hotels, spas and specific resorts.
What is a Luxury Tax?
Payment of anything extra than the maximum retail price can be bothersome and cause inconvenience. People encounter the same thing when paying for bills at hotels and spas after a vacation, however long or short. Luxury tax comes in as a major component of the extra amount on top of the actual bill.
Interestingly, this tax is chargeable on the room rented or the overall stay charges of the hotel, resort or spa, but not on the food and beverages served. Not even on any special facilities provided at the place. In short, just the accommodation is taxed thus. Luxury tax varies from state to state and is not normally under the control of the central government.
Luxury Tax Rate:
The tax for luxury goods and services can include but not be limited to hotels, lodging houses, resorts, congregational halls used for the purpose of weddings, conferences, exhibitions and the like. Discrete club facilities within lodging facilities can also attract an extra luxury tax.
The tax rate concerning luxuries is not tied down to any specific milestone rate set by the central or state government. Such luxury tax rates can range from 3 percent per annum to 12-13% per annum and are subject to changes and amendments from time to time depending on the individual tax laws of the state.
Some of the nominal rates of luxury tax based on accommodation across India are as follows –
- In Delhi, the rates of luxury taxes can be either 5% or 10% depending on the room tariff that ranges from INR 750 and more per night. Services like health clubs, spas and gym facilities will be charged a luxury tax of 3% per annum
- In Goa, rooms equal or below INR 500 per night are exempted of luxury tax. Rents exceeding INR 500 but staying within INR 2000 attract a luxury tax of 5% per annum. When the rents cross over INR 2000 but stay within INR 5000, the luxury rate goes to 8% per annum. For rents more than INR 5000 per night, a maximum luxury tax at 12% is charged
- In Karnataka, room rents within INR 500 to INR 1000 per night are charged 4% as luxury tax, 8% luxury tax is levied on rooms with rents exceeding INR 1000 to within INR 2000 per night. As for the final category, any room with rent more than INR 2000 per night gets charged 12% per annum as luxury tax. Health clubs and congregational halls can have luxury rates ranging from 8% to 10%
- In Rajasthan, hotels (except heritage hotels), grand hotels are charged 10% luxury tax if the rate of luxuries is INR 3001 per day. If hotels are not in the aforementioned category, the luxury tax is levied at 8% per annum. During normal tourism off-season, the luxury tax gets reduced by 50% for specific months of the year
- In Tamil Nadu, room rents of INR 200 to INR 500 get charged a luxury tax of 5% per annum. For rents of INR 500 to INR 1000, the luxury tax levied is 10% per annum. If the room rent exceeds INR 1000 per day, the luxury tax becomes 12.5% per annum
Luxury Tax Returns and Returns Filing:
Luxury tax for any state generally falls under the jurisdiction of the Commercial Taxes Department or the Excise Department. The duty of handling such taxes falls to different departments in different states but it’s normally those institutions that also handle the imposition and collection of VAT, entertainment tax and service tax.
Different authorised departments of different states have developed their own proprietary tools and websites through which one can register as a dealer or business and accordingly fill up the requisite forms that allow one to pay luxury taxes as per how they are due.
The luxury tax returns are normally filed at around the same time as the other commercial taxes (VAT, Entertainment tax and the like) on monthly basis. On quarterly payment of taxes, luxury taxes are supposed to be paid by the last date of the month following the assessment month.