Goods and Services Tax (GST) in India imposes the highest tax rate on luxury goods and products. Earlier, a 28% tax slab was applied to sin and luxury goods. However, the government proposed an increase in the GST on luxury items under the GST 2.0 reform.
The government now imposes 40% GST on luxury cars, luxury cars, handbags, yachts and more to discourage extravagant spending. These new rates make taxes easier and bring together old slabs that had both GST and compensation cess. In this blog, we will understand everything about GST on luxury goods and services.
Luxury goods and services are items that are more than just necessities. They are often a status symbol. They could be any goods or services that offer greater comfort, prestige, or exclusivity. Food, clothing, and a home are essentials that provide basic living necessities, but luxury goods are consumer choices. Everyday examples of luxury goods and services are:
A normal car helps you in everyday commuting. However, a sports car is a luxury. Similarly, going to a budget hotel is sufficient for basic accommodation. However, going to a five-star hotel or resort is a luxury experience.
As these commodities are targeted at the high-income groups, they are taxed more than ordinary items. This is referred to as the GST luxury tax and is meant to help the government collect more taxes.
The government has changed the GST rates on luxury products and services by reducing the compensation cess and introducing new simplified slabs. Here’s a concise summary of the new rates of GST on high-end products:
| Luxury Item | HSN Code | New GST Rate | Compensation Cess |
| Luxury cars (above 1500cc) | 8703 | 40% | None |
| Luxury motorcycles (above 350cc) | 8711 | 40% | None |
| Designer clothes/accessories | Varies | 5% or 18% | None |
| Perfumes and deodorants | 3303 | 18% | None |
| Premium watches | 9102 | 18% | None |
| Jewellery (gold/diamond) | 7113 | 3% | None |
| Yachts | 8903 | 40% | None |
| Private aircraft | 8802 | 40% | None |
| Luxury hotels above ₹7,500/night | 9963 | 18% | None |
| Luxury electronics | Various | 18% | None |
The new regime replaces the previous regime, where luxury goods were taxed 28% with a further cess of 15–22% (if it was for automobiles or motorbikes). For instance, in the new regime, the GST on luxuries such as SUVs or sports cars above engine capacity 1500cc is 40% with no cess. Yachts, private aircraft, and luxury motorbikes are under the same slab of 40%.
Here are some of the most common GST items and their respective GST rates under the new GST 2.0 regime in India:
1. Luxury Automobiles and Motorbikes
Luxury cars are one of the highest taxed commodities in India. GST on luxury cars with engine capacity over 1500cc is now 40%. The same is the case with luxury motorbikes over 350cc. The new rate eliminates the cess but increases the GST percentage so that tax collection stays balanced.
2. Luxury Hotels and Accommodation
Hotels costing more than ₹7,500 per night qualify as luxury hotels. GST on luxury hotels, service apartments, five-star resorts, and villas still stands at 18% GST. The pricing is lower compared to luxury cars, but it still reflects the high-end status.
3. Perfumes and Designer Goods
Luxury items such as alcohol, perfume, and designer clothing are typically taxed under GST at 18%. Perfumes and deodorants are taxed under HSN code 3303 at 18%, and designer clothing and accessories are taxed between 5% and 18%. Alcohol is exempt from GST and charged separately by every state through the charge of excise duty.
4. Jewellery and Watches
Jewellery, including diamond and gold ornaments, is charged 3% GST. Luxury watches, on the other hand, are taxed at 18%. These two rates aim to draw a line between investment items, such as gold, and pure luxury items, such as designer watches.
5. Yachts and Private Planes
Yachts and private planes are charged the highest rate of GST at 40%. These are obvious examples of goods used by the ultra-rich and are thus charged heavily.
| Luxury Item | Old GST Rate | Old Cess | New GST Rate | Cess |
| Luxury cars | 28% | 15–22% | 40% | None |
| Motorcycles (>350cc) | 28% | 3–15% | 40% | None |
| Designer clothes | 12–18% | None | 5%–18% | None |
| Perfumes | 18% | None | 18% | None |
| Premium watches | 18% | None | 18% | None |
| Jewellery | 3% | None | 3% | None |
| Yachts/private jets | 28% | 3–15% | 40% | None |
| Hotel rooms (>₹7,500) | 18% | None | 18% | None |
The new GST rates in India will affect both luxury consumers and businesses alike. Here’s how:
The GST on luxury goods and services was always high in India to make sure that people contribute significantly to the nation’s GDP. However, under the new GST 2.0 regime, the GST on luxury goods has increased from 28% to 40%.
Even though the GST rate has increased, the cess system has been eliminated, and goods are now charged on a flat tax rate. It not only makes it easier to comply with the GST rules but also improves your chances when you apply for a business loan.
1. Do imported luxury cars pay the same GST rate as local luxury ones?
Yes, imported luxury cars pay the same 40% GST rate as local ones, in addition to import customs duty.
2. Is GST on luxury hotel rooms charged per room or per head?
GST on luxury hotel rooms is levied on a room rate basis, according to the room tariff, and not per person.
3. Is GST applicable to luxury brand showrooms that handle imported designer items?
Yes, GST is levied on all luxury items sold or traded in India, whether domestic or imported.
4. Are used or second-hand luxury cars also levied with 40% GST?
No, second-hand luxury vehicles have a different valuation procedure, and GST is levied on the margin value, not the entire price.
5. Do private club memberships or luxury spas attract GST?
Yes, private clubs, spa treatments, and other high-end services fall under the category of luxury services and attract 18% GST.
6. Do online sales of luxury watches or perfumes attract the same rate of GST?
Yes, the same rate of GST is levied on luxury purchases made online and offline.
7. Can luxury spending be allowed input tax credit (ITC)?
ITC cannot be claimed on luxury or personal expenses in general, except those used for business purposes directly.
8. Are luxury cruises taxed differently under GST?
Luxury cruises are taxed at 18%, as are other premium holiday and hospitality services.
9. Is GST levied on renting out luxury vehicles for weddings or functions?
Yes, leasing or renting luxury vehicles is considered a service and is charged 18% GST.
10. Are business jets still considered luxury goods?
Yes, business jets, though utilised commercially, are taxed 40% GST as luxury goods.
