Luxury Tax is an Indirect statutory Tax. This tax is imposed primarily on the services offered at Hotels, Spas, and Resorts. Luxury Tax will not be levied on food and beverages served at hotels and other locations.
Scenario: Let’s understand Luxury Tax from a scenario. If Varun and his family go on a vacation to a resort and stayed there over the weekend. The Hotel management will then have to provide the necessary services such as accommodation, food and more. While vacating the resort, Varun will be charged a bill including luxury tax. Luxury tax will be applicable only for facilities such as the rooms but not on the food provided at the hotel.
According to the Luxury Tax Act, ‘Luxury’ means a service or Commodity that is specified as ministering comfort, enjoyment or pleasure to a persons life. Which means, even though a person may not like a particular hotel or accommodation, as per Luxury Tax Act and State Luxury Tax Rate he/she has to pay the respective taxes involved.
The Indian tax administration has had challenges dealing with the concept of luxury for a long time. The introduction of Goods and Services Tax (GST) by the government has put “luxury items” in the highest tax bracket at 28%. Luxury by definition is hard to explain, it is subjective in nature. One person’s luxury can often be another person’s necessity.
Where is Luxury Tax Applicable?
Luxury Taxes was under the purview of almost all State Luxury Act’s. Taking the example of the State of Karnataka, the following are applicable under Luxury Tax.
- The services provided to the members of a club such as Deposit, Fee, Donation or any other charges as per State Rates.
- The services provided by hotels for the residents.
- Customers availing services at Spas, Beauty Parlours, Health Club, Swimming pool.
- A hospital providing services more than Rs. 1000/- per day. The rate of tax at is 8%.
Luxury Tax Rate
The tax on luxury goods and services can include but are not limited to only hotels, lodging houses, resorts or conference/ congregational halls. There are other clubs having facilities within them to provide lodging that can also attract luxury tax.
Under the GST regime, The GST council has established different tax slabs for hotels and restaurants depending on their turnover and considering the criteria of airconditioned or non-airconditioned.
This now implies that consumers would have to pay out more or less depending on the type of restaurant they are visiting i.e. with an air conditioner or non-airconditioner. The tax rates at restaurants in a 5-star or 7-star hotel will be considerably much higher at 28 per cent.
Here is a list of Luxury Tax rates on hotels:
|Room Tariff per night (INR)||GST Applicable|
|Lesser than INR1000||0% (no tax)|
|INR greater than = 1000 but lesser 2500||12%|
|INR greater than =2500 but lesser than 7500||18%|
|Greater than = INR 7500||28%|
Tax rates that hotels incur:
- Restaurants with a turnover of less than Rs 50 lakh will be imposed a tax rate of 5 per cent.
- Non-ac restaurants will have a tax imposition of 12%.
- AC restaurants will incur 18% tax.
- Five-star restaurants will have to impose a luxury tax of 28 per cent.
- Hotels, lodges and clubs having tariffs rates less than Rs 1,000 will be taxed at 5%.
- Hotel, lodges and clubs with tariffs between Rs 1,000- Rs 2,500 will be taxed at 12%
- Hotel, lodges and clubs with tariffs between Rs 2,500- Rs 5,000 will be taxed at 18%.