Expenditure tax was introduced by the Indian Parliament to ensure the levy of tax on expenditure incurred. The concept of expenditure tax encompasses all expenditure incurred in the specified hotels, restaurants, and retail establishments that are making sales of jewellery. The provisions concerning this tax form are available in the Expenditure Tax Act of 1987. In this article, we briefly discuss the levy of expenditure tax in India.
What is Chargeable Expenditure?
A chargeable expenditure is a payment made or expense incurred in a hotel for accommodation purposes on the basis of hire or lease. Chargeable expenditure does not include the following:
- Remittances in foreign exchange carried out prior to the 1st of October, 1992
- Remittances by a person who is covered under the ambit of the Vienna Convention on Diplomatic Relations, 1961 or the Vienna Convention on Consular Relations, 1963
- Remittances in any shop or office which is n0t managed by the person who pursues a hotel business
- Expenditures incurred as a result of taxation under any of the tax provisions
- Expenditures incurred in the Indian currency that was acquired on the conversion of foreign exchange into Indian currency under the prescribed circumstances
Expenditure incurred in Indian currency acquired by the conversion of foreign exchange into Indian currency is deemed to have been incurred or made in foreign exchange if the conditions mentioned below are satisfied:
- If the payment concerning an expenditure incurred in a hotel has been made out of Indian currency acquired by the conversion of foreign exchange brought into India through an authorized dealer, either by a travel agent on behalf of a foreign tourist or a group of foreign tourists.
- If the payment concerning an expenditure incurred in a hotel has been made in the manner mentioned above, either by an airline on behalf of a foreign tourist or a group of foreign tourists. In this case, a travel agent or the airline must furnish a certificate to the hotel in Form No. 1 while remitting the payment of such expenditure.
- If the payment concerning any expenditure incurred in a hotel has been made by a citizen of Czechoslovakia, German Democratic Republic, Poland, Romania and the USSR.
Taxpayers should note that airline and travel agents falling under the ambit of the Act need to hold a valid license granted under section 32 of the Foreign Exchange Regulation Act, 1973.
The Act is applicable with respect to any chargeable expenditure incurred in a hotel wherein the accommodation charges amount to a sum of Rs. 3,000 or more. In certain cases, a composite charge will be levied on residential accommodation and food. The Assessing Officer is entitled to determine room charges on an appropriate basis if the officer discovers that the charges for such unit, food, drinks and other services are determined in a way that the room charges are understated and the rest of the charges are overstated. The entitlement is bestowed on the officer considering the scope of tax evasion under the provisions of the Act.
The norms of levy under this tax form provide for:
- 10% of the expenditures – incurred at hotels.
- 15% of the expenditures – incurred at restaurants.
Tax Liabilities Under Composition Charge
If a composition charge is levied in respect of residential accommodation and food, the room charges for the same will be determined by deducting the cost of food from the composition charge imposed. The basis of such a deduction is substantiated below:
|S. No.||Composite Charge||Deductible Food Charges|
|1||If the composite charge includes upto 10% of the total charge||Breakfast charges|
|2||If the composite charge includes upto 25% of the total charge||Charges for one breakfast and one meal|
|3||If the composite charge includes upto 40% of the total charge||Charges for one breakfast and two meals|
The following authorities are vested with equal powers, and are authorized to execute functions as provided under the Income Tax Act:
- Director-General of Income-tax
- Chief Commissioner of Income-tax
- Director of Income-tax
- Commissioner of Income-tax
- Commissioner of Income-tax (Appeals)
- Additional Director/Commissioner of Income-tax
- Joint Director of Income-tax
- Joint Commissioner of Income-tax
- Deputy Director of Income-tax
- Deputy Commissioner of Income-tax
- Assistant Director of Income-tax
- Additional Commissioner of Income-tax
- Officer of Income-tax
- Tax Recovery Officer
- Inspector of Income-tax
The above-mentioned authorities are required to observe and be compliant with the orders, instructions and directions of the Board. However, orders, which are covered by the circumstances listed below, must not be issued to the authorities who are having the responsibility to administer the provisions of the Act:
- An order demanding an authority to make a particular assessment or to dispose of a particular case in a certain manner.
- An order to interfere with the discretion of the Commissioner (Appeals) while executing the relevant appellate responsibilities.
All Assessing Officers are mandated to observe and comply with the orders, instructions and directions issued by the Director-General of Income-tax, Director of Income-tax, Chief Commissioner of Income-tax, Commissioner of Income-tax, Additional/Joint Commissioner of Income-tax, within whose jurisdiction the duties of the officer shall be executed.
Taxes incurred for the expenditures incurred in hotels and restaurants must be collected by the person who is vested with the right of ownership of the unit or any other person appointed for this purpose (the latter option can only be invoked in certain prescribed cases). Taxes received on any calendar month must be credited to the accounts of the Central Government within the 10th of the subsequent month of collection. The stringent requirement for remittance shall be applicable even if the concerned person fails to receive the tax from the respective taxpayer, in which case the assessee would be obligated to remit the same from an own account.
Furnishing of Returns
In relation to expenditure tax, the collectors of tax are required to furnish an annual tax return within four months from the 31st of March of the respective year of collection. The return must indicate the following:
- The aggregate of the payments received with respect to the chargeable expenditure determined as per the legislative framework instituted by the Central Government
- The sum of expenditure tax collected in accordance with the rules and regulations notified by the Central Government
- The sum of expenditure tax to be remitted to the accounts of the Central Government
- Any other particulars which, in this regard, are prescribed by the Central Government
If the concerned person has failed to meet this obligation, the Assessing Officer may issue a notice to the person prompting him/her to furnish the return within thirty days from the date of issue of notice. Additionally, the Assessing Officer may serve such person a notice demanding the taxpayer to produce additional documents, accounts or evidence.