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Know The Difference: Service Tax & Service Charge

We all love an evening out with our near and dear ones. Every now and then we are inclined to go and eat outside. After looking at the menu and checking the prices we order all the food that we desire. We are aware of the fact that taxes are going to be included in the bill later on.

People are aware of the fact that the taxes are not included in the prices on the menu, but are not aware of what taxes are applied and at what percentage. This half knowledge is taken advantage of by the restaurateurs.

The two taxes that should be there on the bill are:

• Service Tax
• VAT

Many restaurants also add ‘Service Charge’ on the bill which is supposed to be illegal according to an article in Economic Times. As a customer, it is essential to know the difference between service tax and service charges. Why should we be charged extra? In order to make sure that you pay only what is required; you have to be aware of what is right and what isn’t.

Below we are mentioning the meaning and purpose of the added charges/taxes that you find on your restaurant bills. Read them carefully and you decide what you should be paying for and what you shouldn’t.

 

Service Charge:

• This is charged by the restaurant for all the services that have been rendered to you and the money goes to the restaurant.
• The restaurant can charge any amount for the services.
• There are restaurants that do not charge for the services. Mostly they charge 5% to 10%.
• This charge is basically the tip that you give.

 

Service Tax:

•  Service tax is the tax levied by the government on the services rendered by restaurants.
• Service tax is the same in all states.
• Service tax should be 4.94% on the total bill(40%*12.36). Whenever you see service tax on the total bill exceeding about 5%, you can question it.

VAT:

• VAT rates can be as low as 5% and as high as 20% depending upon the states.
• VAT for food items and drink are different.
•  Many restaurants combine food and drinks and charge a flat rate of VAT on the bill. You always have the choice of asking for separate bills for food and drinks. This will give you the bifurcation between the two.

 

New Cess

The Swachh Bharat Cess has become effective from November 15, 2015 at the rate of 0.5 per cent on all taxable services.

The Krishi Kalyan Cess has been implemented from 1 June,2015 and it is being levied at the rate of 0.5% on all taxable services. This cess is levied to collect funds for development of the agricultural  industry and for the farmers’ welfare.

New Updates in 2017

With innumerable complaints against restaurants charging “service charge” in spite of bad service, government passed a law in accordance with the clarification gained from the Hotels’ Association that it won’t be mandatory to pay the service charge levied by the restaurant. If a consumer doesn’t like the service, he can now freely refuse to pay the service charge on the bill. If the restaurant retaliates for this action, the consumer can take the case to consumer court and complain against the respective restaurant.

So, next time you visit any restaurant or Book a Banquet, make it a point to go through the whole bill and check whether you are being over-charged and if yes, ask the management why.