The Expenditure-tax Act, 1987

Summary of the Expenditure-tax Act, 1987
Key Details
• Act Name: The Expenditure-tax Act, 1987
• Act No.: 35 of 1987
• Enactment & Commencement: Enacted by Parliament in the Thirty-eighth Year of the Republic of India, commenced on 1st November, 1987
• Extent: Initially whole of India except Jammu and Kashmir, later extended through notification
Key Provisions
1. Levy of Tax: - On: Expenditure in hotels and restaurants.
• Rates:
• Hotels: Initially 20%, later reduced to 10% (effective from 1st June, 1994).
• Restaurants: 15% (applicable from 1st October, 1991, to 31st May, 1992).
2. Chargeable Expenditure: - Defined with specific inclusions and exclusions for hotels and restaurants.
3. Tax Collection, Recovery, and Administrative Provisions:
• Responsibility, payment deadlines, returns, assessments, and penalties as outlined in the original summary.

Legislative History:

The Expenditure-tax Act, 1987

Act Title - The Expenditure-tax Act, 1987

Act Number/Year - 35 of 1987

Act ID (India Code) - 198735

Presidential Assent Date - September 14, 1987

Enforcement Date - November 1, 1987

Nodal Ministry - Ministry of Finance

Precedent & Historical Rationale

Fiscal Policy and Conspicuous Consumption:

During the 1980s, the Government of India sought to broaden its tax base, curb ostentatious and extravagant spending, and mobilize additional revenue to address fiscal deficits. Following budget proposals aimed at targeting high-end luxury consumption, the government felt a specific need to levy a direct tax on expenditures incurred in luxury hotels and, subsequently, restaurants.

Targeting High-End Tourism and Luxury Services:

Prior to 1987, income tax alone did not adequately capture lavish discretionary spending by affluent individuals in top-tier commercial establishments. The Expenditure-tax Act was introduced as a fiscal measure to impose a tax on chargeable expenditure incurred in hotels where the room tariff exceeded a specified monetary limit, ensuring that luxury consumption contributed directly to national revenue streams.

Parliamentary Trajectory & Enactment

Formulation:

Drafted by the Ministry of Finance to provide for the levy of a tax on chargeable expenditure incurred by individuals in certain luxury hotels, detailing assessment procedures, collection machinery, penalties for evasion, and appellate mechanisms.

Parliamentary Passage:

Introduced, debated, and passed by both Houses of Parliament (Lok Sabha and Rajya Sabha) during the monsoon session of 1987 as part of the broader financial and taxation legislative agenda.

Presidential Assent: Received Presidential Assent on September 14, 1987.

Enforcement: Enforced on October 1, 1987.

Source: Official Records of Parliament, India Code, and Ministry of Finance.