Taxes in India are generally progressive in nature, that is the rate of tax increases as the income increases. This increase is also supported by surcharges and cess to collect higher taxes from high-income persons. Such taxes are also levied on expenditures that are of luxury in nature. One such type of tax is the Luxury tax which is levied on the expenditures of luxury goods or services. This is the extra tax paid over and above the normal tax paid by the person who enjoys luxuries and premium goods and services.
Luxuries mean goods or services giving enjoyment, comfort or pleasure to extraordinary necessities of life. These are non-essential and affordable to wealthy people. It includes hotel accommodation and other services provided in a hotel, including air conditioning, telephone, television, radio, music, entertainment, extra beds and the like, but does not include the supply of food and drinks. It also includes tobacco and tobacco products, services of club high-priced cars, jewellery and high-end luxury goods.
Did you know? Wealth tax, a form of direct tax, was collected from high-income persons. However, the same was abolished as the cost incurred in collecting the tax was more than the benefit from the tax collected.
What is Luxury Tax?
Luxury tax is a type of indirect tax that is levied in the form of sales tax or surcharge on the purchase of luxury goods or consumption of luxury services. It is levied by the state governments and the rate, levy, etc may differ from state to state.
The other type of luxury tax is the tax levied on expensive, luxurious and premium products and services like hotels, expensive cars, private jets, clubs, etc that can be afforded by wealthy consumers. Here, the seller of the product or service has the duty to collect the tax from customers and pay the government on time.
Luxury Tax Rates
Luxury tax is a state-specific tax. The rate of tax for other states is as per the respective state acts for luxury tax. Its rate, levy and compliance are decided by the specific state and it differs from state to state.The purpose of a luxury tax is to generate revenue for the government and to discourage the consumption of non-essential, high-priced items. Luxury taxes are typically imposed at a higher rate than taxes on essential goods and services.
Also Read: What is Gratuity & Income Tax Exemption on Gratuity?
Rate of Luxury Tax in Goa
The rate of Luxury tax in Goa in respect of Hotel Accommodation is as follows
|
Sr No. |
Turnover of Receipts |
Rate of Tax |
|
1 |
Charges up to ₹1,000/- per room per day |
Nil |
|
2 |
Charges more than ₹1,000/- up to ₹3,000/- per room per day. |
6% |
|
3 |
Charges more than ₹3,000/- up to ₹5,000/- per room per day. |
9% |
|
4 |
Charges more than ₹5,000/- per room per day |
12% |
|
5 |
If a hotel or a club is provided to its members/guests under a timeshare agreement where the facility of availing residential accommodation by such members/guests during the given period in a year is allowed upon lumpsum payment against his/her membership. |
10% of receipt or Rs. 200 whichever is higher |
|
6 |
If a room in a hotel or guest house is leased by the hotel to any company or a person on monthly basis to provide accommodation either as rest house or guest house and the charges is more than ₹1,000/- per day |
6% |
Luxury Tax in Maharashtra
Rate of Luxury tax in respect of Hotel Accommodation in Maharashtra
|
Sr No. |
Rate per accommodation |
Rate of Tax |
|
1 |
Charges up to ₹1000/- per day, per residential accommodation. |
NIL |
|
2 |
Charges more than ₹1000/- but up to ₹1500/- per day, per residential accommodation |
4% of such turnover of receipt |
|
3 |
Charges more than ₹1500/-per day per residential accommodation. |
10 % of such turnover of receipt |
Current scenario of Luxury Tax in India
With the introduction of the Goods and Services Tax in 2017 many of the indirect taxes were subsumed under GST and one such tax is the Luxury tax. Thus, the Luxury tax is no longer leviable on luxury goods and services instead GST is levied. The GST laws have not defined the luxury goods and services by a separate definition but the luxuries indicated in the erstwhile Luxury tax act of respective states have been considered in the GST and a higher rate of tax is levied on such goods and services enhanced by the compensation cess.
Also Read: How to Respond to an Income Tax Notification in Section 143 (1)
GST Rate on Different Goods and Services
The GST Rate on different goods and services which are in the nature of Luxury nature are as follows:
Hotel and Restaurant services
The hotel and restaurants services also charge luxury tax in the following cases:
|
Sr No. |
Type of Service |
Rate |
|
1 |
Hotel Accommodation where charges are less than or equal to ₹7500/- per room per day |
12% |
|
2 |
Hotel Accommodation where charges are more ₹7500/- per room per day |
18% |
|
3 |
Restaurant service other than at specified premises |
5% |
|
4 |
Supply of goods, being food or any other article for human consumption or any drink, by the Indian Railways or Indian Railways, Catering and Tourism Corporation Ltd. or their licensees, whether in trains or at platforms. |
5% |
|
5 |
Supply of ‘outdoor catering’, at premises other than ‘specified premises provided by any person other than- (a) suppliers providing hotel accommodation’ at ‘specified premises, or (b) suppliers located in specified premises. |
5% |
|
6 |
Composite supply of “outdoor catering‟ together with renting of premises at premises other than “specified premises” provided by any person other than- (a) suppliers providing “hotel accommodation” at “specified premises”, or (b) suppliers located in „specified premises‟. |
5% |
|
7 |
Accommodation, food and beverage services other than above |
18% |
Clubs and Gambling
Luxury tax is implemented on clubs and gamings and the rates are as follows:
|
Sr No. |
Type of Service |
Rate |
|
1 |
Casinos or race clubs or any place having casinos or race clubs or sporting events like the Indian Premier League. |
28% |
|
2 |
Services provided by a race club by way of totalisator or a license to the bookmaker in such club |
28% |
|
3 |
Gambling |
28% |
Tobacco Products
There is also a luxury tax in India which is applicable on tobacco products. Let us check out the product and the tax rate applied on them.
|
Sr No. |
Type of Service |
Rate |
Compensation Cess |
|
1 |
Pan Masala |
28% |
60% |
|
2 |
Unmanufactured tobacco, Other manufactured tobacco and manufactured tobacco substitutes, Products containing tobacco or reconstituted tobacco or nicotine substitutes and intended for inhalation without combustion, Smoking Pipes |
28% |
Unmanufactured tobacco (without lime tube) - 71% Unmanufactured tobacco (with lime tube) - 65% Tobacco refuse - 61% |
|
3 |
Cigars, cheroots, cigarillos and cigarettes, of tobacco or tobacco substitutes |
28% |
Cigars, cheroots and cigarillos - 21% or Rs. 4170 per thousand, whichever is higher* |
Other Products
The luxury tax in India is applicable on the following items as mentioned below
|
Sr No. |
Type of Service |
Rate |
Compensation Cess |
|
1 |
Motor Vehicle |
28% |
15%* |
|
2 |
Aircraft for personal use |
28% |
3% |
|
3 |
Yachts and other vessels for pleasure or sports; rowing boats and canoes |
28% |
3% |
|
4 |
Revolvers and pistols |
28% |
Nil |
Conclusion
Composition scheme is an alternative method of taxation under GST wherein small taxpayers can pay tax at a specified rate of turnover It is eligible for those having turnover in case of goods up to ₹1.5 crores or ₹75 Lakhs in case of northeastern states and in case of service turnover up to ₹50 Lakhs. Here, the normal rates of tax do not apply and a concessional rate of tax applies. Suppliers of luxury goods and services can opt for the composition scheme, however, certain goods like pan masala, tobacco, etc have been excluded and other restrictions and conditions are to be complied with for opting composition scheme. From the above blog, you are able to get insights into the system of Luxury tax, the rate and levy of luxury tax in India and how the same is incorporated In the GST regime.
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