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Understanding Luxury Tax and Its Implications on hotels
Subhasmita Behera
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When we travel or stay with friends or family away from home, we usually make hotel reservations or other accommodation facilities like lodging houses. When the receptionist delivers the bill at the end of our stay, we notice that GST is included.

So, what exactly this GST refers to?

The tax imposed on our stay at the hotel comes under Luxury Tax as per the Luxury Tax Act.

Luxury makes one's life more pleasant, relaxing, or enjoyable. And that's why we pay such a hefty amount for our hotel stays.

Even though the Goods and Services Tax (GST) has had a complicated and contradictory effect on the luxury tax, the latter remains one of the government's most important revenue sources. It is essential to ensure that money is distributed fairly throughout the nation. Therefore, to impose limits on the consumption of luxury goods & services and to encourage meaningful and attentive spending, Govt. has considered the concept of the luxury tax.

In hotel stays or lodging facilities, the tax will be levied according to the cost of hotel rooms per night.

Here's a breakdown of what percentage of GST will be imposed at what prices.

  • The cost of rooms upto Rs.7500 will be taxed at 12%
  • And the cost of rooms above Rs.7500 will be taxed at 18%

The government introduced this tax rate to broaden the tax base; nonetheless, it would increase the cost for the final consumers in this segment, making it more difficult and expensive for the ordinary person to afford.

But the catch is that if you make reservations at small hotels with yearly revenues of less than the taxable limit of Rs.20 lakh, you will be exempted from paying any taxes.

An Illustration of the Explanation of the Luxury Tax -

Imagine booking a hotel room for two nights at Rs 3,000 per night. You needed to pay a total amount of Rs.6,000 prior to the notification that the GST council made, but no GST was imposed on it. On the other hand, a GST tax of 12% has been imposed on all bookings made after the 18th of July in 2022. Hence, you will be responsible for paying Rs.6,000 and the GST fee of Rs.720. Your total bill for the hotel room will come to Rs.6,720 if you choose to stay there.

Applicability of luxury tax in other contexts :

  • Customers who utilized the services offered in beauty parlors, health clubs, swimming pools, and spas.
  • A hospital that charges more than Rs. 1,000 per day for their services is subject to an 8% tax.
  • The services that clubs offer to its members, such as a deposit, fee, gift, or any other charges mandated by the State to be collected.
  • Consumption of alcoholic beverages, cigarettes, and tobacco products.
  • The purchase of opulent items such as high-end cars, designer apparel and accessories, fine jewelry and watches, private aircraft, and luxury houses.

In conclusion, luxury products and services attract various tax rates imposed by the Central Government and are the same for everyone; furthermore, it is applied whenever an individual chooses to purchase any of the many luxury products or services.

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