New Delhi: Tying the knot could potentially get you into a knotty situation with the government over taxes.
Thanks to a little-noticed change in last week’s Union Budget, the revenue department has formally extended a 12.36% service tax to wedding planners as well as those who provide wedding-related logistics such as tents, mandap and pandals, typically used in Hindu religious wedding ceremonies. As a result, and starting 1 April, this means that the loophole in the tax law, under people, could classify weddings as religious ceremonies—currently exempt from this particular tax—will close for good.
“The government had no intention to exclude marriage (of any religion) from the purview of service tax,” in the first place, says a revenue department official who did not want to be quoted. “However, some service providers argued before the Customs Excise and Service Tax Appellate Tribunal that since a Hindu wedding involves religious ceremonies, it too should be outside the tax net. The tribunal upheld the the service providers’ view, which is why we have sought to clarify by specifically including marriage functions in the law.”
Every year, the government has been including more services in the tax net and expanding the coverage of existing services. There are now 106 services which attract this levy, helping the government increase service tax collections by an impressive 60% in the past two years. The government expects to collect Rs38,000 crore in fiscal 2007 against an initial budget estimate of Rs34,000 crore.
While not everyone spends the way London-based entrepreneur Arun Nayar and actress Elizabeth Hurley are doing on their wedding and post-wedding parties—the opulent Umaid Bhawan Palace in Jodhpur is part of a multi-city event for the guests—weddings in India continue to get more and more ostentatious, especially in a booming economy.
But, while the government is trying to extract its share of the wedding dowry, it might have a tough task ahead. A majority of weddings—one wedding planner says 90% of them—are paid for in cash, making it hard to collect taxes.
Not all wedding planners are concerned about the loophole going away though. “Even before this clarification, we have been assessing our customers to tax,” says Neeta Raheja of Creative Explosions, a Delhi-based event manager who helps organize about four to five weddings every year. Raheja typically plans weddings that come with a price tag of Rs5 crore and up, often charging up to 15% of the cost of such a wedding for all services.