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Excise department on luxury tax overdrive!

Spa - Luxury Tax

Spa – Luxury Tax

Are you planning to join a gymnasium to lose that stubborn fat? Or, indulging weekend relaxation at a premium spa is part of your routine? There are chances for a price hike, as most gymnasiums, health clubs, spas and hotels are likely to increase their costs to counter the imposition of luxury tax by the central excise department. This move started in Delhi and surrounding National Capital Region only for now, but may be followed by other state governments in the days to come.

Ambit of Luxury Tax: As per the central excise department and the Delhi State government, all banquet halls, health clubs, gymnasiums and spas along with hotels have to pay an annual luxury tax as per their earnings. The ambit of luxury tax for hotels having tariff of Rs. 750 to Rs 1000 per room per day is fixed at 3 % and for those hotels with room tariff above Rs. 1000 per room per day is fixed at 10%.  As of now there are nearly 1,143 hotels of all categories registered with department of excise covered under the luxury tax bracket in Delhi.

Luxury tax was introduced in Delhi in 1996 to hotels, lodging houses and clubs only, to counter any untapped source of revenue in the hospitality industry. Over a period of time, this tax collection has spread its wings to gymnasiums, health clubs, spas and wellness lounges. While health clubs and spas may have been considered to be a luxury afforded by a selected few in the later 1990s, the new era of economic growth in the national capital has made most such services quite common and available to the common man and not upscale and selective. The luxury tax laws however have not been amended leading to hike in price of such services which are used by a large majority of the urban population in Delhi.

Fallout on Common Man: The proactive approach of the excise department to recover luxury tax is likely to make a dent in the pocket of the common man as rates in hotels are likely to witness a substantial hike in order to offset the luxury tax payments. Gymnasiums, spas and banquet halls already fighting stiff competition would also be forced to increase the price of their services in order to counter the luxury tax payment schedule.  With the common man already fighting high inflation and price rise, it seems that getting a hotel room while travelling to a different city or indulging in some spa relaxation or working out in a gymnasium is going to add an extra burden on their budget.

Proactive Crackdown: The move is seen as a result of the trend of low luxury tax collection with hotel owners, who claim loss of business with hotels rooms going vacant or unoccupied for long periods. The difference in luxury tax target and actual accumulation on the ground was so vast that the excise department has decided to take a more proactive role in punishing the defaulter entities. The central excise department had estimated a target luxury tax collection of Rs 400 crore from various sources for the current financial year but managed to collect only Rs 130 crore.

Delhi has witnessed a huge increase in the number of gymnasiums, banquet halls and spas in recent times and the excise department is hoping that a crackdown on registered hotels would serve as an example to the other associated business establishments ushering in luxury tax in a transparent manner.

If you are associated with the tourism industry business located in New Delhi or the National Capital region, make sure you are sharing financial details with the income tax department in a transparent manner. This is because, the excise department is making sure that that it covers all possible corners in collaboration with Delhi Police and the tourism & trade and taxes departments. The excise department has already issued notification to the department of trade and taxes to share financial details of hotels and other such entities that have been paying luxury tax in the past to ascertain if there is a difference between disclosed financial details and the actual ground reality.

 

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