The Karnataka Luxury Tax Act

Karnataka is a state located in south west India, previously known as Mysore. To increase income used to fund government projects, the government of Karnataka introduced the Karnataka Tax On Luxuries Act in 1979. The tax on luxuries applied to hotels and lodging houses, and other places of recreation, including health clubs and marriage halls where hotels provide these facilities for guests.

Chapter II of the act governs the tax applied to hotels and lodging houses, and also includes tax charged against health clubs. Hotels are charged a levy on each room available for guest occupation. Hotel rooms which cost more than 150 rupees, but less than 400 rupees per day are taxed at 4 percent of the room rate for each room. A tax of 8 percent applies to rooms charged at 400 rupees to 1,000 rupees per day, while the top rate of 12 percent applies to rooms charged at over 1,000 rupees per day.

If a hotel includes a health club facility, available to guests, then this is taxed according to Chapter II, section 3 of the act. This tax applies to other facilities, including beauty parlors, conference halls and swimming pools, The tax only applies if the hotel charges guests for the use of these facilities. The tax is set at a rate of 20 percent of the cost of using the facilities. If it costs 100 rupees to use a health club facility, 20 rupees is added to the cost, so that the guest pays 120 rupees. Where the charge to use a marriage hall is greater than 2,000 rupees per day, the hotel must include tax at 15 percent to the fee paid for using the hall.

A tax applies to the sale of luxury items, according to Chapter III of the act. Luxuries are listed in a schedule and different items attract different tax rates. A 2 percent tax must be added to the cost of silk fabrics, while cigarettes attract a tax of 4 percent. A 12-percent tax applies to all electric and electronic goods, including photographic and video cameras. The luxury tax does not apply to items that are sent out of the state, and if tax has been paid on items, according to the Karnataka Sales Tax Act of 1957, the luxury tax does not apply to those items.

If a business liable to pay the luxury tax fails to do so, or underpays the amount due, according to an assessment by the state tax office, the tax commissioner can impose a penalty, along with the tax that the tax office believes it should pay. According to Chapter V of the act, a business proprietor can appeal against a tax assessment or a penalty, but must make the appeal to the appellate authority within 30 days of receiving notice of the assessment or penalty. The appellate authority hearing the case can confirm the assessment or penalty, set aside the assessment or penalty, or it can enhance the assessment or penalty.