Love to Eat Out? Is the Service Tax in Restaurant Bill Justified?
Okay! I just came across a post about service tax in restaurants and service charges applicability. So, I decided to do some research of my own on the topic. Here’s an example:
Considering this is the breakdown of your restaurant bill:
|1||Food Item A||500|
|2||Food Item B||500|
|Service Charges (20%)||200|
|Service Tax (12.36%) on (30% of Rs.1200)||148.32|
- Now, the cost of the food items is the price set by the restaurant. This has to be paid as is and goes to the restaurant owner.
- The service charge is the tricky part. It is set by the restaurant and goes into their pocket.
- The service tax and the VAT go in to the government coffers.
So, after all the reading, this is what I can deduce:
- There is nothing to be said for the price of the food items. Can’t help it.
- Service charge is not to be paid if not informed to you beforehand. Even then, you can try to contest it, especially when the service is bad. Also, the law is not very clear here.
- Do not tip if there is a service charge.
- Service tax is payable only when eating in an AC restaurant having a liquor licence.
- VAT is to be paid.
It gets interesting as we go further. To go into a bit of details, read on:
- The service charge is not specified by the government. Instead, it is levied by the restaurant on its own. It is supposed to be the cost of the ‘service’ provided (i.e. bringing the food to the table, etc). Basically the things for which you tip the waiter.
- The interesting this is, though the service tax is on the total bill amount. It is only calculated on the 30% of the bill amount as it is a tax on the restaurant services and not the food. And since it is difficult to segregate food from services, it was decided by government to take the service component as 30% of total bill amount. Now this means that the price mentioned on the menu card actually contains the cost of the food and its cooking plus the service of bringing it to your table. Then how come restaurants charge a SERVICE CHARGE separately? And for what?
- There is no obligation on your part to pay service charge unless restaurant has clearly specified it in its menu or any other prominently visible place. This is because, when you order food in a restaurant, you agree to their terms and conditions and are bound to pay the charges that they levy.
- It is not necessary to tip if there is a service charge since the service charge is divided among the waiters, bartenders, kitchen staff, etc. or at least, that is what is supposes to be done with it.
- Service tax and VAT are two types of taxes that go into the government pocket.
- Service tax can be collected only by partly or fully AC restaurants with a valid liquor licence. Both the conditions must be satisfied.
- It is not necessary that the facility of air-conditioning is available round the year. If the facility is available at any time during the financial year the service tax has to be collected.
- Non-AC restaurants and those without liquor licences are NOT suppose to collect service tax.
- While staying in a hotel, if you order food in your room, even if it comes from an air conditioned restaurant with liquor licences, does not attract service tax.
- Within the same entity, say within the same hotel, if there are more than one restaurant, which are clearly demarcated and separately named (which is common in most large hotels), the ones which satisfy both the criteria is only liable to service tax. So for example, in a 5 star hotel, there is an AC restaurant with liquor licence, it has to charge service tax. If the same hotel has a open-air restaurant on the rooftop without liquor licence, there is no service tax.
- Services provided by an AC restaurant with liquor licence in other parts of the hotel like swimming pool or an open area attached to the restaurant are also liable to taxation as these areas become extensions of the restaurant. So if you ask the restaurant to send your drinks to the pool-side, they will attract service tax.
- Service tax is applicable only on “serving of food and beverages in the restaurant premises”. Thus home delivery services, food pick up joints do not have to pay service tax.
- If you are staying in a hotel/motel, etc for a period of less than 3 months, then service tax is applicable if the hotel has declared the tariff of the room to be Rs.1000 or above. Service tax is exempted if the declared tariff is less than Rs. 1000/- per day.
The inspiration for this article came from this post by Kumudha Sridharan. Thanks.
Once again, I will repeat that I am not an expert on the subject, so do not take any of this as a formal or legal advice. All content provided here is for informational purposes only. I make no representations as to the accuracy or completeness of any information here. I will not be liable for any errors or omissions in this information nor for the availability of this information.