Luxury Tax in India

Luxury Tax is a type of indirect tax or surcharge that’s levied on all goods and services that are deemed to be luxuries. This can include services rendered at spas, hotels and resorts. The luxury tax will not be levied on beverages and food that’s being served at hotels.  

Luxury Tax is charged on goods and services that go beyond the essential and are aimed at enhancing your enjoyment, experience, comfort or pleasure. An important point to note about luxury tax is that you’d need to pay applicable luxury taxes on purchases and services, irrespective of your experience. 

 

Prior to the advent of the Goods and Services Tax (GST) - a single tax that’s levied on the supply of goods and services, right from the manufacturer to the consumer, luxury tax generally differed state to state depending on state policies. However, with the introduction of GST, the luxury tax, along with many other types of taxes have been subsumed under GST. This is especially beneficial as India has struggled to categorise luxury goods. After all, the concept of luxury is quite subjective. What’s essential to some can be a luxury for many. 

 

Currently, luxury goods are placed under the highest tax bracket of 28% under GST. 

To help you understand luxury tax a little bit better, let’s look at an example. Let’s assume that you and your friends take a small weekend getaway to a beach town and decide to stay at a resort. You reach the resort and decide to treat yourselves to a nice lunch. You’ll notice that the Luxury Tax is being levied on your stay but not on the food or beverages that you enjoy in the resort’s restaurant. This is because hotel stays are considered a luxury but food consumed in the hotel is not. 

Luxury tax is applicable on goods and services that have been categorised as luxuries by the government of India. Here are some goods and services upon which you can expect to pay a luxury tax: 

• Fees and charges associated with services provided by a club. This can include membership fees, deposits, donations, etc. 

• Lodging facilities offered by a hotel or resort in exchange for a specified daily tariffs.

• Services rendered in a salon, spa, beauty parlour, health clubs and swimming pools.

Luxury taxes are levied on hotel and resort lodgings. The tax rate is largely dependent on two factors:

1. Whether or not the lodging offers air conditioning

2. Turnover of the lodging institution

 

Please note that lodgings rendered at five star or seven star hotels can be taxed at the highest tax bracket of up to 28%. 

 

Here’s a list of applicable Luxury Tax rates on resorts and hotels:

Tax rates that will be levied on hotels:

• Restaurants that have a yearly turnover of less than ₹50 Lakhs will be levied a tax rate of 5%.

• Restaurants without an air conditioner will come under the tax bracket of 12%.

• Restaurants with air conditioners will attract 18% tax.

• 5-star restaurants will come under the luxury tax bracket of 28%.

• Lodges, clubs and hotels which charge tariff rates that are less than ₹1,000 will be taxed at 5%.

• Lodges, clubs and hotels which charge tariff rates that are between ₹1,000 and ₹2,500 will be taxed at 12%. 

• Lodges, clubs and hotels which charge tariff rates that are between ₹2,500- ₹5,000 will be taxed at 18%.

Prior to the introduction of GST, the Luxury Tax was not uniform across states. Each state has its own tax bracket and filing processes. Much like other indirect taxes, luxury tax returns were to be filed on a monthly or quarterly basis. However, with the introduction of GST, the entire process has been streamlined and standardised all across the country.

Introduced in 2017, the Goods and Services Tax has since subsumed almost all types of indirect taxes, including the Luxury Tax. Luxury goods and services can  include lodging houses, hotels, resorts, conference halls and banquet halls. All goods and services rendered within these institutions will be subjected to applicable GST. The rate of taxation is generally dependent on revenue and whether or not the lodging offers air conditioning. Additionally, five-star hotels and seven-star hotels will also be subjected to applicable GST. 

Currently, Luxury Tax all across India is currently uniform and standardised all across the country under the purview of GST. Depending on the revenue levels, tariff rates, type of goods and services rendered, etc. The rate of taxation will be levied as per applicable GST.