What is Expenditure Tax in India?

The Expenditure Tax in India is governed by The Expenditure Tax Act of 1987. The Act was enacted by the Indian government to levy a tax on chargeable expenditure incurred in specified hotels and restaurants.The Expenditure Tax has been abolished and brought back a few times. Today, it is governed by the Act that was introduced in 1987. The Act defines chargeable expenditure as payment made to a hotel where the room rent is in excess of Rs 3,000 per day, or the charges are incurred in a restaurant.The chargeable expenditure does not include remittance in office or shop that is not managed by any individual who is part of a hotel business, remittances in foreign exchange, and remittances by any individual who is covered under Vienna Convention on Diplomatic Relations. Any expenditure by means of taxation under any of the tax provisions is also not considered as a chargeable expenditure.

Expenditure tax in India under the relevant Act is only applicable to a hotel wherein the accommodation charges are in excess of Rs 3,000. The Act prohibits covering up of actual room charges with other charges such as food, drinks, and other services. The assessing officer of the Income Tax Department will have the authority to determine if the breakup of charges has been done correctly or there are any errors.

As per the Expenditure Act, the tax charged is 10 per cent of the payment made at a hotel and 15 per cent of the payment made at a restaurant. The government collects the expenditure tax from the person operating the hotel or restaurant business that is providing the services that fall under the definition of chargeable expenditure. Taxes that are collected in any month must be paid to the Central Government before 10th of the subsequent month. If the person liable to pay taxes is unable to collect it from the respective taxpayer, he/she would be liable to pay the same from their own account.

As with all forms of taxes, collection of Expenditure Tax is also applicable for filing of respective returns. The collector of the tax is required to file the return within four months from the end of the financial year, i.e. March 31. The return will cover the details such as payment received with respect to chargeable expenditure, tax collected, the amount remitted to the accounts of Central Government, and any other additional particulars as applicable.If the returns are not filed on time, the assessing officer has the power to issue a notice for the same. Once the notice is issued, the return must be furnished within 30 days from the issue of notice. The assessing officer may also demand additional documents to verify the accounts.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.