Charges and Taxes in Restaurants

These days, eating out has become an expensive affair. The total bill amounts to much more than what was expected while ordering the food. This magnification of the bill is due to an increase in the taxes and charges. These taxes and charges added in the bill are: Service tax, value-added tax (VAT), service charge (sometimes), and the newly introduced Swachh Bharat Cess. These various charges and tax increase the final bill by 25-30%. Hence, it is important that we be aware of the meaning of these additional elements in the bill, their current rates, and how they are to be charged.

Service charge

Service charge is collected by the restaurant for rendering its service to the customer. It is not a tax and is entirely charged by the restaurants. They are free to charge any amount, or no amount at all, but it usually varies from 5% to 10% of the total bill amount. This amount is corresponding to the tip which is typically given to waiters for a good service, so there is no need to pay a separate tip.

The ground rule is that only if the menu mentions service charges, then it can appear in the final bill. If the menu does not mention it, it means it was not communicated to the customer and hence he cannot be charged the service charge.

Service tax

This is different from service charge as this is tax levied by the government. The tax is levied on the services provided by restaurants. Service tax is the same in all states. Only a restaurant that has central air conditioning or heating in some part of their facility has the right to charge service tax.

The current service tax rate is 14% from an earlier rate of 12.36%. The important thing to note about service tax is that it is only charged on 40% of the total bill. Therefore, if the bill is Rs.1000, the service tax will only be charged on Rs.400 (i.e. 40% of 1000). So, the effective service tax is 5.6% of the total food bill.

Value added tax

VAT is only applicable on food items that are prepared in the restaurant as they add value before serving it to the customer. So ensure that VAT is not charged on packaged food items or water bottles. Rate of VAT tax differs from 10% to 15% depending upon the state, because it is levied and controlled by each state separately. In Telangana, the VAT for food items and non-alcoholic beverages is typically charged at a rate of 14.5% while VAT for alcoholic beverages and cocktails is generally 5.5%.

It is also to be noted that VAT is to be charged only on the main bill plus service charges.

Swachh Bharat Cess

The Government recently imposed a 0.5% Swachh Bharat Cess on taxable services. It is effectively 0.2% of the total bill amount since it is calculated on 40% of the total bill. SBC has been imposed for the purposes of financing and promoting the cleanliness drive.

Moreover, after the release of the Union Budget 2016-17, Krishi Kalyan Cess of 0.5% will also be levied on all taxable services, June onwards. This will make eating out more expensive. The income from this cess will be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers.

Conclusion

With the ever increasing tax rates, it is critical for customers to check if all the taxes and charges are computed properly and as per the rules. Most of the times, there is not much that can be done about overcharging. This is majorly because of our own unwillingness as well as the ignorance of the restaurant managers. However, in many cases, questions can be posed and the bill can be corrected.

–Supriya Lakhtakia