Every time I dined out, which is pretty much every weekend, I ended up paying ~30% extra on items, which I did not fully understand. There were VAT, service charges, service tax and on top there is a tip! 30% is a considerable amount and can easily buy me a couple of coveted dishes, for which I generally have ‘reserve’ apatite even after a full meal. Nevertheless, I paid it every time and returned hungrily.

Recently came across a Facebook post telling me what I did was wrong! The full content of the Facebook post is pasted bottom of this post. It claimed India restaurants charge service taxes on top of total bill amount rather than just service charges. This is that hallelujah moment, where you realize you’ve been cheated but you are not alone. Generally, I don’t believe Facebook posts, but this post is telling me just what I wanted to hear.

So basically, so far, this is what I understood:

• Service charge is optional
• Service tax is on service charge rather than the full amount.

Next first thing I tried is one of those fact-checking sites, like this one. Unfortunately, Hoax or Fact site declares it FACT! But if you see the explanation is about service charges rather than service tax itself.

All this joy was short-lived when I read what I did not want to hear. Apparently, the bill was right, they were according to law, which includes “don’t dine outside”. Read this for complete understanding on service tax – Service Tax in Restaurants – What the law really says!

1. Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant – 40 %
2. Service portion in outdoor catering wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of such outdoor catering – 60 %

Let me summarize

1. Service tax and service charges are two mutually exclusive overheads on your bill
2. Service charges are ‘almost’ mandatory tips, will be distributed with all employees of the restaurant (technically).
3. The restaurant has an obligation to let you know that there will be service charges, even before you dine/order. In case no such display or abysmal service, you can refuse to pay that (technically)
4. Service tax, on the other hand, goes directly to the government, will be 40/60% either on top of the total food bill, which includes VAT.
5. Never trust Facebook post on first look.

Happy dining out with your inflated bills!

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SERVICE TAX At Restaurants – VERY IMPORTANT!!!
Interesting. I find restaurant bills often so confusing. I just give up and pay the amount shown n the bottom line. Perhaps we shouldn’t.

Incidentally, I also resent the inclusion of Service Charges in restaurant bills, because it assumes that I was satisfied with the service. Just a matter of principle. Service Charge should be something I leave behind at my personal discretion. I recently demanded that the service charge be removed as the service was non-existent. After a short – very short! – Discussion, it was removed. About Service Tax….. Be aware

This happened at the restaurant. Let me explain. We had been to several restaurants recently. I observed that “service tax” was being misused in the way it was being charged to customers.

Let me give an example.
– – – – – – – – – – – – – – – – – – –
Food and Beverage = Rs. 1000.00
Service Charges @ 10% = Rs. 100.00
Service Tax @ 4.94% = Rs. 54.34 (on F&B + Service Charges)
VAT @14.5% = Rs. 145.00
Total = Rs. 1299.34
As per the definition – “Service Tax can be charged ONLY for the services provided to the customer”.

Now, see what is happening here in the above example. Service Tax should be charged only on the Service Charge amount i.e Rs.100 ONLY, and NOT on the entire amount (1000+100). In this example, the customer should be charged only Rs 4.94, whereas he has been charged Rs. 49.00 extra. Where does this money go? Only the restaurant owner and the chartered accountants who work for them know.

• So, I have started asking them the questions – and am surprised to see the reaction from famous restaurants. Either they say: “Sir we cannot change the format of the bill – so , we will recalculate and tell you the revised amount. You may pay only that.”

OR

• “Sir, you do not need to pay the Service Tax amount itself”!! I now have 3 to 4 restaurant bills, but for which I have paid only the service tax on the service charge and NOT on the total amount.

Every bill MUST carry the TIN number and Service Tax Number, if they charge it. So . . . , I ask for the Service tax number if it is not available in the receipt that they provide.

As we cannot go to any government official and ask them to get this right – because of our system. Please remember – we cannot change any political leader – but we can change ourselves. If we change ourselves – things will change. Please do share this with every one of your friends and known people. Ask for the right tax calculation and Pay only the tax which is supposed to be paid. Verify every bill and receipt that you make payment on.”Please share if you think its worth”