written by | January 10, 2023

Everything about Luxury Tax in India | Definition and Rates

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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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FAQs

Q: Whether GST on luxury goods and services a state tax or central tax?

Ans:

GST is a destination-based tax which means tax is levied in the state in which goods or services are ultimately delivered or consumed. In case goods or services are delivered in the same state then CGST (Central Tax) and SGST (State Tax) are levied and if goods or services are delivered to another state then IGST (Integrated Tax) is levied which is paid to the central government.

Q: What is GST compensation cess?

Ans:

It is an additional levy of tax over and above the applicable GST. It is calculated on the base value of the product i.e without adding the GST amount.

Example: If the price of a car is ₹10,00,000/- and the GST rate is 28% and the GST compensation cess is 15% then GST levied is ₹2,80,000/- and the GST compensation cess levied is ₹1,50,000/- totaling ₹14,30,000/-

Q: Is Luxury tax different from wealth tax?

Ans:

Yes, the Luxury tax is levied on expenditure on luxury goods and services, whereas wealth tax is paid on the net wealth of a person and not on the expenditure by him. However, as of now, both taxes are abolished.

Q: Can Luxury tax payments be set off against income tax payments?

Ans:

No, the Luxury tax now subsumed under GST is an indirect tax that cannot be set off against income tax payment.

Q: What is the payment and return filing procedure for Luxury Tax?

Ans:

In the erstwhile Luxury Tax Act, every state had a separate filing procedure, but in the GST regime there is a common payment and return mechanism for all the goods and services supplied.

Q: Is any separate registration required for the levy of GST on luxury goods and services under GST laws?

Ans:

No separate registration is required under GST laws, but the business of those luxury products needs to be disclosed while applying for regular GST registration.

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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.