Service Tax at Restaurants
Everyone of you must have noticed all the taxes and miscellaneous charges details which are listed in the bill you get from a restaurant. But, I am sure most of you never bother to find out how they are computing it. It typically includes the following:
- Value Added Tax (VAT)
- Service Charge
- Service Tax
Service charge is collected by individual managements from customers for the services provided. Typically service charges are in the range of 5-12 % in most restaurants, which is payable on the total cost of items consumed without any taxes. Often the front-line staff like waiters who get tips while those employed in the kitchen and others hardly get any. The service charge collected is distributed among all staff, usually after taking into account break-ages and other damages. But, note following two key points:
- It is not illegal to levy the service charge but, if it is there, it should be displayed clearly, especially on the menu.
- Service tax is levied by the government and is payable ONLY on the services provided to the customer.
Service Tax
Several restaurants and hotels are misusing the ignorance of customers and charging them more than the reasonable price. Tricky part here is what comes under service? Service tax can be levied only on the service portion of the bill. In case of restaurants and outdoor catering determination of service portion is given in Rule 2C of the the Service Tax (Determination of Value) Rules, 2006. Following table gives the current rule:
| Business Type | Percentage of total bill under service portion |
|---|---|
| Restaurants | 40 % |
| Outdoor Catering | 60% |
Presently actual service tax which should be charged in a restaurant is 12.36 % of the gross bill i.e. 40% of (service charges + cost of food and beverages excluding VAT). This is equivalent to 4.94% of the total bill ( 12.36 % of 40% of x = 4.94% of x). There are several articles and DHCBA’s notice in this regard, circulating on various social media channels, which are not correct or partially correct.
Here is an example how it should be calculated:
Food and Beverages = Rs. 1000.00
Service Charge @ 10% = Rs. 100.00
Service Tax @ 4.94% = 4.94% of Rs. 1100 = Rs. 54.34 (on F&B + Service Charge)
VAT @14.5% = 14.5% of Rs. 1100 = Rs. 159.50
Total = Rs. 1313.84
Who can charge service tax?
According to rules, only restaurants with air-conditioning in any part or central air-conditioning/heating and/or those with license to serve alcoholic beverages can charge service tax. A/C facility need NOT be available throughout the year. Remember, service tax is chargeable ONLY on the service portion of the bill (which is 40% of total bill @12.36% as per current law).
NOTE:- Service tax should not be charged on sale of food by way of pick-up or home delivery and also goods sold at MRP.
Where to register complaint?
In case of any consumer dispute the person can contact the respective commissionerate for service tax (for ex. http://www.servicetaxdelhi.gov.in/publicgrv.asp) , and from there the activities of the service provider will be inquired into by the commissionerate itself. Else, you can simply register your complaint with us at complaint@yignore.com.
Conclusion: From now on always verify and ask for the right tax calculation and pay only the tax which is supposed to be paid.
References:
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