The person who owns the hotel or restaurant, or someone they appoint, is responsible for collecting the expenditure tax. The tax collected for a month must be sent to the Central Government by the 10th of the next month. If the person fails to collect the tax from the customer, they must still send the tax from their funds.
The people who collect the tax (like hotel owners) must submit an annual tax return to the government within four months of the end of the financial year (by July 31st). The return should include: [1]
- The total amount of money received for chargeable expenses (like room charges and food costs)
- The total amount of expenditure tax collected
- The total tax that should be sent to the government
- Any other details the government may ask for
If the person doesn’t submit the return on time, the Assessing Officer can send a notice asking them to submit the return within 30 days. The officer may also ask for additional documents, accounts, or evidence to check that the tax has been collected properly.
The Difference between Expenditure Tax and Income Tax
[2]
While income tax is levied based on net income, expenditure tax is charged on the total expenditure incurred. As we all know income tax is progressive, which means that as income increases, so does the rate of taxation. Expenditure tax was a flat tax. Which simply means everyone paid the same rate of tax despite their income.
The key difference to note here is while expenditure tax was levied on the total expenditure, income tax was levied on the total income.
Expenditure Tax Abolished in India
[2] Before its removal, an expenditure tax of 2 % was imposed on spending exceeding Rs 30 lakh for individual or HUF. The tax applied costs related to purchasing, building, repairing, or upgrading immovable property, fuel (except kerosene for lightning), vehicles, entertainment, amusement, and international travel. Medical treatment costs were not taxed.
Conclusion
Expenditure tax has been abolished in India. The main difference between income tax and expenditure tax is that the former is levied on an individual’s income, while the latter is levied on an individual’s spending. Expenditure tax was seen as a way to discourage luxury spending and encourage savings. However, it was generally considered unfair and unpopular and eventually abolished. Some countries still levied expenditure tax, though it is not common.
[2]
FAQs
What is the expenditure tax?
The expenditure tax is a tax levied on money spent on accommodation at hotels and certain expenses at restaurants.
What is chargeable expenditure?
Chargeable expenditure refers to money spent on hotel accommodation, excluding specific exempt payments.
Who is responsible for collecting the expenditure tax?
Hotel or restaurant owners or their appointed persons are responsible for collecting the tax.
What is the tax rate for hotel expenditures?
The tax rate for hotel expenditures is 10%. [1]
What is the tax rate for restaurant expenditures?
The tax rate for restaurant expenditures is 15%. [1]
When should the collected expenditure tax be sent to the government?
The collected tax must be sent to the Central Government by the 10th of the next month of collection. [1]
What happens if the expenditure tax return is not submitted on time?
The Assessing Officer may send a notice asking for the return within 30 days. [1]
What is the difference between expenditure tax and income tax?
Expenditure tax is based on spending, while income tax is based on net income.2
Has expenditure tax been abolished in India?
Yes, the expenditure tax was abolished in India.2
Was the expenditure tax progressive?
No, the expenditure tax was flat, meaning everyone paid the same rate regardless of income.2
References
[1]https://www.indiafilings.com/learn/expenditure-tax/
[2] https://unacademy.com/content/upsc/study-material/economy/a-simple-note-on-expenditure-tax-in-india/
An ISO 9001:2015 
