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Luxury Tax is an indirect statutory tax, imposed primarily on the services offered at hotels, spas and resorts. It is not applicable for food and beverages served at hotels and other locations.

In this article, we will discuss the following:
  1. What is Luxury Tax?
  2. Luxury Tax Explained With an Example
  3. Where is Luxury Tax Applicable?
  4. Luxury Tax Rate

1. What is Luxury Tax?

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. 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.

2. Luxury Tax Explained With an Example

Say, 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 that includes luxury tax for facilities like the rooms, but not on the food they provided.

3. Where is Luxury Tax Applicable?

Luxury Taxes was under the purview of almost all State Luxury Acts. 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 mandated by the State
  • The services provided by hotels for their residents
  • Customers availing services at spas, beauty parlours, health club, swimming pool
  • A hospital providing services more than Rs.1000 per day at 8% tax

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4. 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 INR 1000 0% (no tax)
Greater than INR 1000 but lesser 2500 12%
Greater than INR 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%.
 

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