Are you getting fooled and paying extra money on your restaurant Bills ?

POSTED BY manish ON August 5, 2013 COMMENTS (327)

Do you know that you might have lost thousands of rupees in paying extra money on restaurants bills over last few years, just because you do not understand what does service charge, service tax and VAT actually means and how are they calculated. Most of the times customers take it for granted assuming that hotel must charged it in right manner and as per rules laid down. Lets learn about these 3 concepts today so that next time you pay a hotel or restaurant bill, you exactly know what you are paying for and raise your voice if something is wrong.

When the Bill Arrives

Just before the bill arrives, I have this habit of running “guessing competition”. Whoever is with me, I ask him/her – “Guess, what would be the bill amount be around ? Give the range , whoever is close wins !” .

Almost all the time I am very close to the actual amount, but then I am not close to the final amount to pay, because I always forget to consider various tax and charges applicable, which always inflates the bill by 20-30% . Imagine you eat worth Rs 1,000 and pay Rs 1,260 finally ! . You know that feeling :).

So if you look at your bills when you eat at hotels and restaurants, you will see 3 kind of charges namely “service charge” , “service tax” and “VAT” . Lets decode them one by one and see what exactly they are

Service Tax and VAT on Restaurant Food bills

1. Service Charge

Service Charge is a charge levied by restaurant for the service provided to customers. This is generally 5%-10% of the bill and restaurant owner is free to charge whatever amount he/she wants as service charge. Its up-to you to decide if you want to eat there or not. The service charge has to be displayed in Menu, only then it can appear in the final bill. If you do not see it on Menu, it means it was not communicated to you and you cant not be charged service charge.

Service Charge at Barbeque NationActually service charges are to be distributed among waiters and staff and its kind of compulsory “tip” to be paid. So if there is service charge on the bill, you are not suppose to tip officially to any one. So don’t feel awkward not paying the tip, because you have already paid it in form of service charge, however most of the hotels and restaurants never tell you this explicitly. However one of the exceptions I know is restaurant called “Barbeque Nation”, I could clearly see it was written in their menu that “We will levy 4% service charge on the final bill, and you are not suppose to tip any one (strictly prohibited), because service charge will be shared among the staff” . The ethics quality was as high as their food quality 🙂

So if your food bill is Rs 1,000 and service charge is 10% , then your final bill will be Rs 1,100 .

2. Service Tax

The important thing, you should be aware about is how service tax is calculated! . Do you know that, Service tax is only applicable on 40% of the bill amount, not the total amount. As the service tax is around 12.36% at the moment, the final tax you need to pay is only 4.944% (12.5% X 40%) on the bill (inclusive of service charge).

The next important thing you should know is that, only AC restaurant can charge service tax. If there is no AC in restaurant (fully or partially) , they cant charge service tax at all. This service tax goes to Govt of India. The service tax is payable on the bill amount + service charge. So if Bill amount is Rs 1,000 , and service charge was Rs 100 (10%), then your sub total would be Rs 1,100 . And your service tax will be computed on Rs 1,100 (not Rs 1,000).  4.944% of Rs 1,100 will be Rs 54.38 and your total bill after service tax would be Rs 1154.38 . A lot of unprofessional and small restaurants are found to charge service tax on the full bill and most of the customer pay because they have no idea what is wrong and what is right. Here is official Note on service tax

Note – On 3rd Nov 2012 , Bar Council by mistake interpreted that service tax is to be paid only on service charge, and it starting circulating over facebook and emails. But note that it was a mistake and later clarified that service tax is to be charged on 40% of the bill amount also. So dont fall for wrong information . Even some one posted it on our jagoinvestor forum and I myself believed it to be true !, but later decided to investigate it.

3. VAT – Value Added Tax

VAT is Value added Tax collected by State Govt. VAT is only applicable to the food items which are prepared inside the restaurant, because they “added some value” and then hand it over to you. So make sure you do not pay it on packaged items which are not prepared by Restaurant like Packaged food items, water bottles etc. A lot of times you eat at restaurant and also take a lot of packaged items, in which case VAT should be applicable not on final bill, but only sub total of the food items you consumed.

VAT Charges vary from state to state, but generally lie in the range of 10% – 15% . Like in Maharashtra its 12.5% , and in Karnataka its 14.5% . VAT is to be charged only on the main bill + service charges. It CANT be charged on the amount after service tax. So in the same example we looked about, the final bill after service charge was Rs 1,100 , so VAT at 12.5% will be Rs 137.5. Now total bill amount would be

  • Food Bill – Rs 1,000
  • Service Charge – Rs 100
  • Service tax (4.944% of 1,100) – Rs 54.38
  • VAT (12.5% of 1,100) – Rs 137.5
  • Total – Rs 1,291

29% higher Bills compared to Cost

You can see how various charges and tax can increase your final bills by 25-30% . So next time you pay your bills, just make sure your check, if all the taxes and charges are computed properly and as per rules.

Any personal experiences ?

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327 replies on this article “Are you getting fooled and paying extra money on your restaurant Bills ?”

  1. sima says:

    if we take a food for service to hotel that is food vendor is third party we just take prepare food form him than is it so that food vendor charge is 15% vat and 6% service tax? i m in vat food component shcem please guide

    1. I am not very clear on this

  2. mass says:

    hai sir , service tax applicable in parcel

  3. Sahasrajit says:

    When we order something on home delivery basis and on pick up basis, for the same order we get a different bill why is it so??

  4. SRIHARI says:

    What type of Taxes attract in Mineral Water Bottles in A/c Restaurant.

  5. swati says:

    * “value added tax”

  6. swati says:

    Can they charge VAT twice?
    Stating one as “VAT” and another one as “value added atx 58” ??

    1. No , both are exactly same

      1. SRIHARI says:

        Sir, Iam working in Restaurant

        Can we collect tax on water bottles cost@20/- + taxes

  7. varshinidevi says:

    Wonderful!! this is really one of the most beneficial blogs I’ve ever browsed on this subject.After read this i get some idea about vat charges thank you for sharing this good info with us.

    1. Thanks for your comment varshinidevi

  8. Gopalakrishnamurthysarma says:

    Please provide bill format for 3 star hotel bill to note tax % of Luxury tax, Vat, Service tax etc., including food items, banqut hall rent and Bar with Aircondition hall in Hyderabad, India

    1. You need to check this with a CA

  9. ARITRAGUIN says:

    Can VAT be charged on total amount(ie. FOOD AMOUNT+SERVICE TAX OF 5.8%+SB CESS)? KFC SOUTH CITY KOLKATA have charged vat on all these amount. It will be helpful if you can provide a solution.

    1. It should not be charged on the full amount !

  10. Deepika says:

    Is service tax no. is necessary to be mentioned in bill or only tin no. is sufficient to collect service tax?????

    1. Service tax number should be mentioned to collect the service tax !

  11. Nitin says:

    Service Charge is not a Govt levied Charge, so can restaurants impose Service Tax and Vat on Service Charge as well? I dont think so Manishji. Could you please clarify ?

  12. Arnav says:

    Hi Manish

    Greetings for writing this article. I highly appreciate your efforts.
    Though one point surely gained my attention, as you have mentioned that VAT is applicable on service charge, my query is that VAT is only applicable on value of goods, and as service charge is not a good, hence VAT should not apply on the service charge portion of the bill.

    Kindly enlighten with your comments on the same.
    Cheers!
    Arnav

    1. Yes, i think you are correct !

  13. deepaj says:

    Please help me about vat limit on restorent business

    1. Hi deepaj

      Thanks for asking your question. However, I dont think I am eligible to answer your query as its either out of scope of my knowledge or its not related to money matter directly

      Manish

  14. Sneha says:

    As per tax rules service tax and vat is not charge on the same amount.The bill amount has to be break up for each tax. But if hotels charge both tax where to complain for same

    1. Can you share the source of this information ?

  15. Saket says:

    Can a home delivery restaurant ask for service charge , service tax and Vat ?

    I am ordering food online and they use to collect two tax.

    Where should i Complain ?

    1. shivam says:

      well yes u will be required to pay service charges and vat as vat is mandatory and serivce charge is discretionary.

    2. Yes for service tax, and Tax, but not service charge !

      1. Ram says:

        Dear Manish,

        From what I know, if food is being delivered from a commercial kitchen (not a restaurant) to a consumer at home,
        1. Service tax is not applicable. (even if food is from a restaurant, Service Tax is not applicable)
        2. VAT would be 5% if revenue is is between 5 lakhs and 1.5 crores and 14.5% if revenue is more than 1.5 crores.

        Please correct me if I am wrong. (Telangana Commercial Taxes)

        1. Hi Ram

          We are still researching on this and at this moment we are not 100% sure of the answer.

          We will write an article on this and let you know

          Manish

  16. sarfaraz says:

    Hi..I would like to know Service tax and luxury tax is applicable in guest house in kolkata where in the room tariff is below Rs.1000 but the total sales is more than 30 lac per annum ? Rooms have Tv and Conditioner.

    1. sarfaraz says:

      * total sale is more than 10 lakh

    2. Yes, service tax is applicable !

  17. Kewal says:

    Do we have to pay tax on the home delivery food or take away service? If yes, which tax and what percent shall be paid?

      1. Kewal says:

        Thanks Manish for Clarification..!!

  18. anand says:

    Why would VAT and Serve Tax apply ?

    I am selling lunch dabba prepared at my home. The food is very normally packaged just to make sure it won’t spill over and not much branding. The subscribed customers come to a point and collect their dabbas.

    In this case, I don’t think I am giving any service so do I have to pay service tax ?

    I am selling the home prepared lunch dabba at a very normal room temperature Zero Rated category. Do I have to pay VAT here ?

    Please clarify my doubts. This must be helpful to many people here.

    1. There is no VAT here, but service tax still applies. You are giving SERVICE . This is service as per govt 🙂

      However if you are not making more than 10 lacs a year, you dont need to worry !

      1. anand says:

        Hey Manish, That was a very quick reply. Thank you…. but I see you mentioned in some posts below that service tax is not charged on home deliveries and take aways? Now I am confused why I need to pay service tax to home deliveries of homemade food ?

  19. Sugandha says:

    Hi! In many restaurants like mc donalds I am being charged with service tax, vat @14.5 and AGAIN vat @20% and I cannot seem to figure out where the VAT @20% came from. I live in New Delhi. Please reply back asap

    1. Please give a snapshot by uploading it somewhere

      1. Anshu says:

        I also faced similar issue… 20%vat on vat of 14.5 %…. Ur fb I’d plz

  20. Anoop says:

    Can the restaurant charge vat on the service charge as well ?

      1. harsha says:

        Hey, Manish, I think you made a mistake while calculating the VAT charges. VAT has been calculated on both the bill amount and service charge. It is quite contrary to that. It should be charged only on bill amount not on the service charge.Hope you will rectify that. Have a nice day.

  21. jawed says:

    Hi, is service Tax and VAT applicable on Home delivery and take away in Maharashtra ? I am planing to start a food startup in pune, only for home delivery . takeaways latter . kindly suggest .

    1. Yes, it will apply

  22. MilindDinkarBorkar says:

    Is there any method to confirm that Taxes collected like Maharastra VAT or Service Tax are actually deposited in respective government treasury or siphoned off by these agencies.

    1. You cant exactly find out, but if someone is collecting that, they will pay it to govt else they will get caught by govt !

  23. deepak says:

    Manish I hv been charged 12.5 vat on roti..is it chargable

    1. Yes, why not ?

      Any item which is prepared inhouse in restaurant . On that VAT will be applied. Whats the difference between Roti and Pizza as far as taxes are concerned 🙂

      Manish

  24. Bhavesh says:

    I visited Citrus Hotel Pimpri today at midnight , i had pasta , tea & a packed water bottel , The MRP on the water Bottel was Rs.50 & in the menu card it was rs.49 , but when i recived a bill , it was Rs.99 & then service charge & service tax , so can i complaint that i was charged above MRP & Above the price written in the menu card

  25. Sudeep says:

    Hi guys
    Today I went to dominos pizza and found that they are charging 45% of vat and 17% of service tax.. Is this correct? I hope not because in the above blogs I see highest limit is vat is not more than 14.50%. Please provide a clarification.

    1. You need to first check with them and see what is their explaination on this !

    2. Anandh says:

      These pizzas come under luxury tax. Since all these cheese are imported , I guess that is the reason why they charge heavily.

  26. pankaj says:

    is service tax applicable on take away-food

  27. murali says:

    In a hotel bill if they have not showed about the vat amount and can they give bill only for amount of what we have eaten. Isn’t it violation and evading of vat amount being paid to govt. Can we lodge a complaint about it

    1. Yes, if the VAT registration number is not written on the bill, then you dont need to pay it.

  28. shrinivas says:

    if the restaurant not registered in the service tax & he claimed the service tax is offense so please guide me what is the next procedure for action

    1. You need to complain about him to service tax department

  29. Reeti says:

    I had 2 beers priced at 320 each. And they added VAT @ 14.50 on total amount 720 . Isn’t it incorrect as beer MRP includes the VAT

    1. If its mentioned already , then they should not charge you VAT seperately !

      1. Onkar says:

        But VAT is applicable on food only which are prepared in premises ,then how VAT can be charged on beer as they are pre-packaged item ?

        1. No , VAT is not just applicable on food item only!

  30. Jerry says:

    Hi,

    Can you please check this bill? It was a parcel. Is it okay to calculate tax on the added value of a carry bag? Also is it okay to add service tax as it was a parcel?

    Food – 155
    Carry Bag – 3
    Sub Total – 158

    VAT 14.5% – 22.91
    Service Tax 5.6% – 8.85
    Total – 190

    Thanks

    1. Yes, service tax should not have been calculated , its a wrong thing

  31. Amish says:

    Can vat b charged on a pepsi bottle costing 35 and sold at 60 and vat of 12.5% be charged on rs 60.
    Since the bottle always mentions inclusive all taxes

      1. roopa says:

        how can vat be can on mrp when it is clear including all taxes

  32. nimish says:

    I prepare pavbhaji a my home and sell it to customers only home delivery. Is VAT, service charge or service tax is applicable??

    1. I think service tax is still applicable !

  33. Srikanth says:

    A restaurant has charged me VAT. But the bill is just a cash bill with no registration and no tin. How can we be sure that they are despoting this with the authorities and not pocketing ?

    1. You cant be sure 🙂 .. you need to talk to them about this ..

  34. DILIP says:

    Hello Sir,

    Faasos charged me 14.5% VAT and 5.6% Service tax on home delivery. Is this correct?

    1. I think with changes in rules, it is correct now

  35. Danish says:

    Hello
    I had recently parcel some food items the owner told me that VAT is still applicable for the same . and charged me with 5% VAT. Also he charged for the parcel charges. Is this OK ??

    1. Yes, this looks fine to me

  36. KAushik singh says:

    To kya sir,Hume sirf 14% ka 40% hi Dena hoga.(hotel aur resturant me)

  37. Bunty says:

    Dear sir,
    if i got the discount in restaurant, what is the base amount for tax calculation. after discount or before tax.
    Please clarify

    Regards,
    Bunty Rana

    1. Mostly the tax would be on the total amount

      1. Bunty says:

        Dear Sir
        Thank for reply but i want know what is base the amount for calculation. i am confused about this. some i time visit in the restaurant they take tax before discount amount. is right ?

        Please explain.

        Regards
        Bunty Rana

        1. I think there is always a debate around this topic, as this is not defined by law.

  38. naziahaleem says:

    Hi

    Really appreciate your post…but i still have some doubts…i will appreciate if you clear them too….like i being regular visitor of VLCC i questioned them about my bills referring to your post..where they are still charging service tax @ 14.42 on total package ( not as 5.6 % of total package as per your post) ..they simply answered that these post is valid only for food bills but not applicable on beauty services/salon spa etc..so me and other vlcc clients are forced to pay huge amount of money to VLCC as service tax …kindly clear vlcc/ other salon services and spa are allowed to charge @14.42 on total package.

    Nazia.

    1. Yes, they are correct . The article only talks about FOOD bills and their service tax.

      Salons will charge regular service tax

  39. sankar says:

    Sir, Is service tax and vat applicable on parcel food. When the food is taken as parcel from the restaurant and the parcel charge is paid.

    1. No , service tax is not valid on parcel gfood

  40. lakshmi says:

    Dear Sir,

    Good Morning

    I have one doubt is service tax is applicable for Only Frost Launch Bar

    1. I didnt get your query

  41. isaac says:

    Dear Sir,

    I plan to start a Food Ordering Service through Mobile App.

    In this Case, We will be Listing 20 to 30 Restaurants in an Area and will charge a Fee for Listing them on My Mobile App. I will definetly be paying the Service Tax for the Fee that I collect from the Restaurants.

    When the User Clicks the Respective Restaurant the Menu will be Listed, The User can add the products in the Cart and Check out with their credit/debit card. Where they will be checking out of my Merchant Account which i have with CC Avenue. After Successful Checkout the Restaurant will receive the Order and they will service the client by Pickup or Delivery.

    So there are 4 Entities:
    The User/Buyer/Client
    My Self/I will be having the Marchant Account with the Payment Gateway
    The Payment Gateway Company/CC Avenue (Transaction Fee is 1.99% )
    The Restaurant/Who Executes the Order

    For example:

    If User/Buyer/ buys for Rs.100/-
    Me as a Service Provider will charge 10% as a Commission. (Out of which 1.99% for Payment Gateway)
    So Payment Gateway Transfers the Money to my Bank Account within 2-3 Days after deducting 1.99+ their Service Tax.
    I transfer Rs.90/- Deducting Our 10% Comission

    So Out of My 10% Commission I have to pay Service Tax.

    Now my question is:
    As a Food Ordering Service Is it enough for me to have Service Tax Registration for this?
    Do I also need to have VAT Registration for this?
    Do I need to Pay VAT in this Transaction?
    Or Restaurant needs to Pay VAT? or Both of us need to Pay VAT?
    Should I collect VAT also on Behalf of the Restaurant and Transfer it to them?

    Infact I am only Charging a Commission on the Total Amount but the Total Amount is Collected in My Bank Account which will be transferred to the Bank Account.

    Please Advise your Expert Advise on this.

    Thanks in Advance.

    1. Hi isaac

      A CA is more qualified to answer you query, hence I suggest better get in touch one.

      We are not right people to talk on this

      Manish

  42. Devpriyo says:

    Had lunch at a restaurant on 21st July 2015. Foll is the bill items in order:
    Item 1 = Rs 198.00
    Item 2= Rs 144.00
    Total Amount = Rs 342.00 (A)
    VAT @ 12.% on Rs 342.00 = Rs 42.75 (B)
    Service Tax @ 5.6% on Rs 342.00 = Rs 19.15 (C)

    Total I payed = A + B + C = Rs 403.90.

    Is the above, correct way of calculation by the restaurant ?

    1. Looks good to me !

    2. SALMAN says:

      Its supposed to be 402.21

  43. Kumaresh says:

    Thanks fr ur value added details about all taxes included in Hotel bills…:-)

    1. Thanks for your comment Kumaresh

  44. Samir says:

    Thanks for the useful article sir.
    I want to know if restaurant with AC is liable to pay service tax if they are not charging for the services on the bill seperately. On full bill amount they are paying Vat on composite scheme.
    If applicable than we have to see the taxable services whether it exceeds 10 lacs ?
    Please clarify.

    1. Yes, they have to pay service tax to govt !

  45. bhavesh kale says:

    sir will you help in getting service charges , service tax, and VAT charges for the year 2015..? I wanted to get myself updated.

    1. I didnt get your question !

  46. muzaffar says:

    IT MEANS THAT RESTAURANT CANT CHARGE VAT ON COLD DRINKS LIKE PEPSI OR COKE AS IT IS IS NOT MADE IN THE RESTAURANT

    1. Navneet says:

      Thay are not charging Excise from you……they are charging VAT for trading of Goods/Products…..Excise is charged in case of manufacturing

  47. VAT & Service tax both are charged on service charge.. Isn’t it wrong ?? Double taxation !!

    1. I am not sure whats wrong in that ?

  48. Saurabh says:

    Hi Manish,

    Thanks for the useful article, really appreciate it.And have a question.

    Yesterday, I had pizza at pizza hut at Delhi . They charge correctly as you explained in given article i.e service charge of 10% , service tax of (40% x 14% = 5.6%) and VAT of 12.5% and 20%.
    I noticed that they charge two rates of VAT i.e 12.5% on (pizza amount+service charge) and 20% on (coke amount + service charge).
    As you have explained that VAT can not be taken on packaged food items and since coke is a packaged food item, how could they charged 20% on it?
    Could you please tell me is it correct or wrong ?? because i frequently visit these restaurant chains and can ask them next time to amend the bill.
    Thanks in advance.

      1. Yugam says:

        I noticed that they charge two rates of VAT i.e 12.5% on (pizza amount+service charge) and 20% on (coke amount + service charge).

        How come they charge twice on service charge(12.5% and 20%)????????????????

  49. Anil says:

    My understanding of this is vat and service tax cannot be imposed on the same item
    Suppose bill is rs 100
    Service tax on 40% =40 *14% =5.6
    Vat on 60% =60 *14.5%=8.7
    Total bill =114.13
    How can you charge vat on service component ,if 40 percent is considered service and service tax is levied on it then vat should be levied on balance 60 percent only.please correct me if I am wrong

    1. They can be there on same item

      1. vigneshkumar says:

        Dear Sir,
        Can u please explain me in detail… Even i also confused with that same question……………

        Regards,
        Vigneshkumar M

  50. swapnil says:

    i make bakery product at home and outsource it to different canteens i want to know what taxes (in maharashtra) will be levied on my product. which ones i need to pay and which ones i need to collect from customers.

    1. Hi swapnil

      Your cases is a bit complex and I think we are not the right people to comment on it.

      My suggestion would be hire someone who is professional in this area and consult them

      Manish

  51. Riaz says:

    Hi Manish,

    Thanks for the useful article, really appreciate it.And have a question.

    Is the service tax or VAT applicable if I buy food through online website(restaurants) and they door deliver or I order through telephone(restaurants) and they door deliver.

    Thanks in advance for your response.

    1. Definately. Service tax is to be charged and paid to govt. It does not matter if you buy online or offline .

      What they cant charge is the service charge !

  52. Jaghau says:

    Do we need to pay tha ST and VAt if the VAT and ST number are not mentioned in the invoice? most of the resturent they don’t mention the same. let me know. (Example: Twist resturent in Koramangalla )

    1. NO , in that case you dont need to

  53. Shivam says:

    Hi,

    Manish

    Thank you

    1. Thanks for your comment Shivam

  54. Girish GM says:

    Whether service charge is compulsorily to be collected or is it at the option of restaurants ?

    1. Hi Girish GM

      Its something they have to pay to govt. So they can either collect it or pay from their pocket !

      1. Girish GM says:

        Hi Manish

        Thank u for ur reply. To the best of my knowledge service charge is a profit for the restaurants and shared among different people of different designation and not deposited to govt. But i want to know collection of service charge is at the option of restaurants or not ?

        1. Opps . I by mistake read it as “Service charge” last time . Service charge is optional and its upto the restaurant if they want to take it. I think its a good idea to levy a 2-4% service charge ! , provided the service is really awesome !

          Manish

  55. shiva says:

    But, to whom we should complaint if we found this type of situation.
    As such we can’t fight against hotel management,

    1. Its going to be tough , because for a small amount you will have to reach the consumer court . Most of the people will not do that !

  56. Vasu says:

    for Hotel what is the rate of Service Tax in the case if we are in COT.

    1. What do you mean ? what COT ?

  57. Harmesh says:

    What is HVAT @ 12.50 % in one of the restaurants home delivery Bill ?
    They also charge Surcharge on Vat @5%
    & service tax @4.94%

    1. Hi Harmesh

      The question asked by you is beyond our scope. Its suggested that you hire an expert on the issue and pay them for the advice.

      Manish

  58. V. SREENIVASULU says:

    Sir,

    I request you to kindly provide any Government Order or Rule or ACT showing that VAT should not be collected on Service Tax in Food Bills in Andhra Pradesh State

    1. Hi V. SREENIVASULU

      The question asked by you is beyond our scope. Its suggested that you hire an expert on the issue and pay them for the advice.

      Manish

  59. Ankur says:

    Dear Sir,

    Good Morning!
    I request you to advise me about service tax exemption in the following scenario please. Scenario –

    I’m opening a coffee cafe outlet (franchisee) in a corporate office in Noida, U.P. Area is approx. 600 sq. feet and it is situated in front of building lifts at the entrance and it is a non air conditioned area. Apart from this area all of the building which has numerous offices, is centrally air conditioned. There is also a food court on the first floor which is non air conditioned. (Let me also know your views if this food court is air conditioned as I’m not sure about it) Seating capacity of this space is approx 30 seats but it is a common area. Will I have to charge service tax from my clients ?

    I would be grateful for an expert reply on this matter. Thanks in advance.

    Sincere Regards,

    Ankur Sethi

    1. Hi Ankur

      The question asked by you is beyond our scope. Its suggested that you hire an expert on the issue and pay them for the advice.

      Manish

  60. Lalit says:

    I presume you will agree that Taco Bell and Mc Donald’s are similar kind of restaurants. If that is true then why is it that Mc Donald’s charges Service Tax and VAT whereas Taco Bell only charges Service Tax? One of the two is wrong in the interpretation of the govt. rules, don’t you think?

    This is in B’lore.

  61. sumeet says:

    the query is this. VAT is the tax which is on the value added. SO if yr bill was 1000, intrinsic cost is 300, and value added is 700, So the VAT should be calculated on Rs 700 and not 1000. Secondly, is the service tax also applicable for home delivery
    (considering the restaurant is AC, however home delivery is free) eg the commercial pizza outlets. Also can the restaurant charge a Service charge. As in eg mentioned, Rs 700 is the profit (plus service charge). So it is beyond logic that a seperate service charge be charged

    Thirdly, some some markets offer buy one get one free over (eg Rs 400+400). However they charge VAT on Rs 800 rather than Rs 400. Also if we are buying a shirt with MRP 400, so can VAT be charged

    1. Sumeet

      I can comment only on service tax part, Its not applicable for the take home delivery .

  62. Pankaj Agarwal says:

    Hi,

    I have one query regarding billing of packaged food. For e.g. Dominos sell Coke @35+taxes. but shouldn’t it be selling at 35 (MRP)

    1. Hi Pankaj Agarwal

      If you are using it on their premises, they they can charge tax !

  63. sumit says:

    why service tax charge 4.09% on pizza in resturent but service tax is rate 12.36%

    1. Because only 40% of food cost can have vat , so 40% * 12.36% = 4.09%

  64. Vj says:

    Is there a website where we can record our complaints like these where restaurants charging over taxes to the commission..?

    1. Not a single consolidated place as of now !

  65. Aditya says:

    What should I do now? Should I have a talk with the manager of that restaurant?

  66. Aditya says:

    Do we have to pay sales tax on restaurant bills? They charged me 19.50 rs on a bill of 390rs, that too for home delivery.

    1. Was it really Sales tax ? Or it was service tax ?

      1. Aditya says:

        Sales tax as well as service tax both were charged.

        1. I think Sales tax can never be charged for FOOD ITEMS . Its illegal as far as I know .

  67. praveen says:

    Hi,

    Can VAT be charged on items like pizza even in case of take away?
    I find a difference between Pizza Hut and Dominos Pizza.
    Pizza Hut does not charge VAT on take-away but Dominos Pizza charges VAT on take away.

    Regards,
    -Praveen

    1. As far as I know service charge should not be taken , but VAt I am not sure !

  68. Amit Dakshit says:

    Hi Manish,
    For VAT calculation on Restaurant bills, Basic bill amount plus service charges are considered.
    However VAT is the Value Added Tax and is Not applicable for Basic Procurement Value on Items where VAT is Not applicable.
    e.g. If Restaurant bill of Rs 700/- comprises of Tomato soup, Chicken Tanduri and Aloo tikka, many Inputs such as Tomatoes, Raw Chicken, Potatoes are exempt from VAT.
    If the VAT exempt Input cost is Rs 300/-, then VAT needs to be charged on Rs 400/- . Why VAT is charged on entire Output / Menu price ?
    Don’t you think that an Abetment % needs to be decided on Menu price for Charging VAT to the end Customer ?
    Amit

    1. Thanks for sharing that . Do you know a rule where restaurant has to separate the food items and then charge the VAT only on those food items where VAT is exempt. I think that wont be like that because its too tough to find that out . From what I know the VAT is applicable on the food bill .

  69. aditi says:

    Thanks Manish.. but what about the difference in VAT %? Has the govt declared that VAT on food will be 12.5 and 20% on drinks or can they apply any percentage on VAT? if not what action can we take against this?
    Also when govt itself says that dont pay more than the MRP. Does that concept not apply for restaurants? It is only applicable for street vendors and shopkeepers?

    1. There is another tax called VAT (value added tax) that is state specific. The rates can be as low as 5% and as high as 20% depending upon the states. Moreover, VAT for food items and drink are different. Many restaurants might club food items and drink and charge a flat rate on the total bill. In such cases, it is good to ask for separate bills for food and drinks. This should clearly show the different VAT for both the items.

  70. Aditi says:

    Hi Manish,
    I visited KFC restaurant at Vasant Vihar few days back and noticed that they have applied 12.5% VAT for food item and 20% VAT for soft drinks.When i inquired about the same, they were not aware of the details. Told that that’s what is fed in the system. I am not aware of any such rule.
    Also when we visited a restaurant at Cyber Hub, Gurgaon we noticed that the MRP on Aquafina Mineral Water Bottle was just Rs. 18 but we were charged Rs. 90 plus all the taxes. Can they do that?

    1. Hi Aditi

      If you are not taking a take away and using the food/beverages inside their premises and using it there, then the shop (of whatever it is) is free to charge you any amount

      Manish

  71. Brajendra says:

    In recent Judgement of HighCourt, outlets should not charge VAT on the portion on which Service Tax is being paid, i.e. they should charge VAT only on 60 % amount of pre-tax bill.

    1. Thakns for sharing that !

  72. gangadhar says:

    Hi,
    i have a doubt, it is acceptable to display rates of food items without added taxes in menu’s, even on shops while saying prices on electronic goods, shop owners say prize X if we give money then they say vat extra without figuring the final cost, is it correct

    1. If they are not putting the final price on the menu, they must atleast write that VAT or Service Tax is extra . If they dont write it in Menu , they cant just ask for it later verbally.

  73. Paras Sharma says:

    I must say, you have shared few restaurant start-up insights that were not known to me. I have also written a post about the same topic on my personal blog, i hope you will not mind it accepting it within comments for further reading.

    http://www.buzzparas.com/2014/11/restaurant-startup-4722

    thanks

  74. vivek pandey says:

    please tell me if we sell only food packet parcel so can we take vat only or service tax also inlude..?

    1. No you cant take that in that case !

  75. santhosh says:

    Can service charge be levied on home deliveries ????
    I was charged 4.9% for home delivery.
    If not, where should I lodge the complaint.
    Thank you.

    1. You can lodge complaint with the department which collects service tax

  76. mohit says:

    As per rules, VAT of 14.5% should be calculated and levied only on the value of food and beverages and not on ‘food+beverages+service+service charge’. Check out in this article

    ..http://m.timesofindia.com/city/hyderabad/Hotels-charge-VAT-even-on-service-charge-tax/articleshow/25349848.cms

    1. Thanks for sharing that Mohit !

  77. Gurpreet Singh says:

    we have paid 12.36 % service tax on Rent , Royalties etc. and can set offf 40% of this against service tax collected from Restaurant Sales …….correct?

  78. Mithun says:

    Can food courts also apply service tax as people generally sit on a common area and not infrastructure of the restaurant

    1. Yes, it will still apply because infrastructure is still there, even if shared !

  79. Chandan Bose says:

    Excellent clarification by Manish Chauhan.
    Learnt a lot. Thanks.

  80. Mohammed Katlariwala says:

    Derar Sir,
    My Quarries How Much Service Tax in Food Parcel Service Tax , How Much Service Tax in % Particuler Service Tax Low

    1. On food , its 4.9%

  81. Santhosh says:

    Hey, was reading this while eating and was surprised to see the bill gave no info on service charge service tax VAT etc. It had service tax number. Heading was tax invoice but had particulars and rate alone. Total Rs. 130.00 [ inclusive of all taxes] no split up was given nothing. Menu didn’t mention if the rate is inclusive or not. Are they right in giving invoice without split up??

    1. Yes, its not the right thing . THey have to give you the full split and exact amount !

  82. AMIT S says:

    Hello

    Very Useful Article…
    but this article is silent on MRP based items sold in restaurants, like Soft drink & Alcohol.
    And the VAT on Alcohol is high in some states…

    And even after knowing all this information… how can we be sure that the Restaurant is paying this collected tax to Govt?

    And is there any Notification or caselaw that says if the Menu doesnt mention about Service Charges then they cant charge it… since not every restaurant mentions about it 🙁

    1. If you are taking it as parcel item, then you dont need to pay more than MRP ,. else you have to pay what they ask for

  83. ashish patel says:

    is service tax applicable on soft serve sell by mc’d?

      1. Balaramakrishna says:

        Hi Manish,

        I think Service Tax should be calculated only on service charge but not on foodbill+Service charge.

        Total food bill=1000
        service charge (10%)= 100
        service tax (4.944%)= 4.9444 but not 54.384

        please clarify as i am a bit confused with the below article

        https://www.jagoinvestor.com/forum/how-restaurant-misuse-service-tax-thought-to-share-the-email-i-got.

        Thanks,
        Balaram.

        1. Logically yes, As per LAW – its not the case 🙂

  84. Ashish Raibage says:

    The govt. Service tax law is asking mcd donals, pizza hut , etc to pay service tax on their total sale even take aways & home deliveries.. the govt is taxing u double, charging vat also n service tax also… n then ur hard earned money goes for all thses free schemes floated by govt…likes foodgrains @Rs. 2 n all..
    Its govt to be blamed n not hoteliers. ..
    also as per law if any part of the hotel has a AC ,then all sell may be room service, take away, garden, self service etc.. should all be taxed.

    1. Hmm .. I dont have solution for that. One can file a PIL on this ..

  85. piyush says:

    Mcdonalds, pizza hut, dominoz all are charging service tax in home delivery. what action should we take bcz utimately we are paying much more than actually required to be paid.
    Please reply. Thanks

    1. You can take the receipt from them and then file a consumer court against them

  86. piyush says:

    i want to ask whether Mcdonalds and dominoz pizza are liable to charge service tax under resturant service? service tax is applicable for resturant service which is air contioned. service tax is not applicable to self service resturant. As per Act serving of food is important then only they are coming under resturant service.
    Further they are selling food across the counter,they are not serving food.
    secondly they are charging service tax on home delivery and take away parcel also. But as far i am concern no service tax on home delivery and take away parcel as there is no service. i am correct?? please reply. Thanks

    1. I already answered that they should not be charging it

      1. piyush says:

        Thank you for assuring that there is no service tax on home delivery. But in this question i also asked what about when we eat in there premises.??In case of macdonalds and Dominoz they are not serving, they have opened a counter from where they are selling food across the counter. We go and collect our food and eat in their premises. Whether Macdonalds and Dominoz are liable to charge service tax when we eat in their premises. As far i am concern they should not. But i mailed the Macdonalds authority and they replied as follows:

        In response to your query on the service tax, we would like to apprise you that with the new service tax introduced by the GOI on the AC restaurants’ or on restaurants that have Air Conditioning as part of the establishment. This service tax is charged at 4.8% at McDonald’s and is besides the applicable VAT. This was introduced on April 1st 2013; and would have an impact on the final invoice. This is applicable on all dine in, take away and home delivery orders.Please note McDonald’s will never deceive its customers. We do not have such cheap intents or values. We are proud of managing our business ethically not only in India, but also across the world.we would like to apprise you that such decisions are not made on the basis of a news report. There has been no clarification provided by the Government. The quick service Industry through National Restaurant Association of India has made representation to the GOI…so until there is some clear guidance and instructions from the GOI on this subject, we would continue to abide by the taxation laws.

        Now when we argue with them they not even bother to think. What we should should.

        1. Actually you need to pay service tax when you eat in their premise, they are correct .

          Regarding service tax on home delivery, there are some judgements which said that it should not be charged and some say that its fine . So better ask them for a circular where its mentioned !

          1. piyush says:

            sir but i had a discussion with taxmann writer Mr. V.S.Datey he said that they should not charge service tax even on when we eat in their premises as they are not serving food but selling food across the counter. But Mcdonalds is not taking any chances therefore they are charging service tax.
            As per Mr. datey he said they must not charge service tax on dinning as they are not serving, but sometimes macdonald said to their customer that sir please wait 10mins we will give you your table. In that case only Mcdonalds can charge service tax. But this typr of serving is very less in mcdonlads and dominozs but spmetime they serve food in table that is onces in blue moo, on that basis they might charging service tax.
            Whereas there should be any service tax on Macdonalds and Dominozs as they are not serving food, they selling accross the counter. furthet they dont even give their cockery like plate also to the custome then how come they are covered under resturant service??
            http://www.taxmann.com/service-tax-queries-reply/23149/mcdonalds-and-dominos-pizza-centres.aspx

            1. Its not so straight forward. If you have issue in this, you will have to file a PIL or consumer court case , only then you will be able to see the concrete answer or judgement on this .

            2. piyush says:

              Thank You sir

  87. gaurv says:

    Hello Manish sir,

    Your article is definitely awesome. I want to know that if service tax is not applicable on non ac or home delivery than why pizza delivery includes service tax. I think as we customers are not aware with these calculations also all restaurants or pizza house owner or their staff are also not aware. I have a argument on this with restaurants owners many times. Some time I ask them first before giving any order but they reply service tax will be applicable. so what to do in this case. Where we can complain about it.

  88. Pranav says:

    A truly enlightening article, Manish. Keep it up. We consumers on account of ignorance easily get duped but after becoming informed after reading up on this i intend confronting the service providers for clarifying my right and maybe learning if there is something more to it even from them. Government needs to simplify and publicise their taxes and go around surprise inspecting the restaurants and hotels as decoy customers but i wonder if it is on their agenda at all. A 24×7 government helpline to log complaints even if not provide immediate redressal is welcome.

  89. Chetan Ambi says:

    Thanks for enlightening us on this subject. I wasn’t aware of the calculation of service tax, service charge n VAT. Whenever I have visited restaurants I just used to look at the total bill but not these charges. I always thought they will be calculating all these charges correctly. But looks like I am wrong. From next time I will be be checking all these charges. Really very nice article Manish !! Keep it up..

  90. Raja says:

    This is a good discussion.
    Is there anywhere on the sales tax website which says that service charge cannot be levied for home delivery of food even if the restaurant is AC or serves alcohol? I need some official link which mentions this clearly.

    I know a Smokin Joes outlet which not only charges service tax on home delivery, but also mentions that “service tax registration has been applied for” on the bill. So effectively, they dont have the required registration to collect service tax and they are still collecting it.

  91. Version says:

    One other thing – when restaurants charge service tax and VAT on the bill, they are supposted in include respective registration numbers on the bills. Several restaurants do not print those details on the bill, and that is illegal. Most likely the restaurant is pocketing the amounts instead of paying them to the govt.

  92. Version says:

    Barbecuenation is certainly an exception. Their waiters carry a badge that reads “No tips please”. Would like to share couple of experiences:
    1. I usually do not pay attention to the bill amount, but when I visited Pizza Hut a few months ago, bill was much higher than what I expected. I saw a fat service charge on the bill and inquired with the waitress if that was distributed amonst the staff. She declined. I did add tip to the bill and paid, but that was the last time I visited Pizaa Hut.
    2. Visted Rude Lounge with a few friends. Although I added tip amount to the bill, my credit card statement did not show it. Possibly because a service charge was already added on the bill and the restaurant did not feel it appropriate to charge amount that was inclusive of the tip. On the other hand, it could be an error on restaurant’s part. Would know when I visit the next time.

    1. Thanks for sharing that Version ! . Its really not a good thing on part of Pizza Hut that service charge is not shared with waiters .

  93. Jwalant Desai says:

    Dear Manish

    I have one suggestion for your website.
    Please add link for sharing articles on facebook, twitter etc. Or email link for sharing.

    “”Sharing is Carying”

    1. Sharing links come on the left side of the article anyways !

  94. Hariom says:

    Very nicely explained & the comments have added various dimensions to the discussion. Really enlightning.

  95. Indu says:

    Thanks, it was valuable information which most if us are not aware of.

  96. Damandeep Thakur says:

    Hi Manish,
    Which is the Govt./official site reference for this calculation?
    Even if I find this wrong calculation in the bill, I can only argue with restaurent.
    If the matter has to be raised to some authority, its better to know the govt. reference of this.
    Also, don’t we agree that we should have an EASIER process from govt. for complaining against such frauds.

    Regards,
    Daman

    1. Its a FRAUD case , just call the police OR let me call the police (you dont pay money) and register a FIR first . I will have to get hold of exact website link

      1. AMIT S says:

        I have heard that a guy argued with regard to wrong calculation and then he called police and the restaurant ppl reserved the extra amount….

        1. Thanks for sharing that !

  97. Mukesh says:

    Why should service charge / tax and VAT both be applied on the same product (food here) ?
    VAT ideally applies to products & parts while service tax on labor.
    e.g. when we put the car for service, the VAT is applied parts or oil etc, whereas service tax on the labor charges.
    But both the charges are not applied on the same item.

    Why is it not for the food. Either it be qualified as product or as a service and just 1 charge should be levied on it.

    What are your thoughts Manish ?

    1. Service tax is there because there is SERVICE invovled . and VAT because there is value addition involved .

  98. Chetan Pinto says:

    Truly enlightening article Mr. Manish. I wanted to know if the same rule applies when we stay in a hotel as well or how different it is. Please let me know.

    1. Yes. its true for hotel also , but in that case the service tax will be full on 12.36%

  99. Jayshil Dave says:

    I guess you missed the additional tax of 10% on aerated drinks/liqours which is applied by central govt. I am not actually sure whether its 10% or 20%. That is currently missing in your information above. Apart from that brilliant. Thanks…

    1. But is it applicable on all states ?

  100. Mathew Blake says:

    Hi Manish – is it applicable to purchasing an apartment as well. I have the below math, does it make any sense?? Thanks in advance. ~ Blake

    SALES TAX AND SERVICE TAX CALCULATION

    UDI X FIR = ___________________________X Vacant Land Guidance Value
    237 2.5 592.5 1800 (land Guidance value )

    Land cost = Rs 1066500
    Total sale consideration = Rs 5200000

    Total Sale Consideration – Land Cost = construction Cost x 70%

    5200000 1066500 4133500 70%
    Depreciation Cost 2893450 14.50%
    419550.25 Sales Tax
    Construction Cost – Depreciation Cost = Value for service Tax x 12.36%
    4133500
    2893450
    1240050 12.36% 153270.18 Service tax

    SALES TAX 419550.25
    SERVICE TAX 153270.18
    Total value of Taxes 572820.43

    DD On The Sub Register Gandhinagar
    5.6% on 52 Lakhs 291200
    1% on 52 Lakhs 52000
    Registration Value 343200

    1. Mathew Blake says:

      Hi Manish/ Anyone – can throw some light on the above please.

      Thanks,
      Mat

      1. Hi Mathew

        Please open a thread to discuss it here – http://www.jagoinvestor.com/forum/

  101. RD says:

    Thanks Manish. This is something we never told about or we never take a pain to understand 🙂

    1. Yea .. please spread the new acquired knowledge !

  102. Shiv P Chatterjee says:

    Well explained and a real eye opener for the common man

  103. praveen says:

    Hi… thanks for usefull information.

    Recently i took admission in 1 institute at bangalore .. they charged for the course around 5000. service tax is 450. including. How they can deduct the tax only 450 rupees. ??
    Unfortunately trainer has not available ..so they returned back the money after 1 day, the amount is 4500, i asked them to give receipt as they told no !!! i told to bifurcate the amount they have given, they said, 450 service tax– 50 rupees for bank charges , as i paid through debit card.
    How much institutes can take the service tax ?? please let me know …

    regards /-
    praveen

    1. VIKRAM GAJJAR says:

      I also have faced such situations but at retail outlets.Over a period of time I learnt from my daughter in US to always ask for what is there REFUND policy.Let them clearly spell it out on paper,read it and if suits you make a purchase.
      In such a situation they can never make surprising deductions etc.
      reg
      VIKRAM

  104. soumi majumdar says:

    thanks for the info

  105. arvind says:

    What about the hotel bills?
    What if the restaurant or hotel is adamant about charging higher taxes?
    Should we threaten them of reporting to Consumer forum?

    1. Definately. Tell them this is rule and how are they charging more. Take the bill and actually file a police complaint. Tell them that you are calling the police there itself !

      Manish

  106. Vishal Navlani says:

    Hi Manish,

    I wanted to know about the restaurants like McDonalds or KFC. They charge Service tax on the total bill which includes VAT (Value Added Tax). so this 4.995% should be charged on the total food bill excluding VAT? McDonald prices already include VAT. Please provide your feedback

    1. No they cant do that. ask them for explaination !

  107. vineet garg says:

    pizza hut had a different strategy to dupe customer:

    pizza price = price+4.944 ST =179
    service charge on this amount= 17.9

    These guys are charging service charge on service tax 🙂 smart way………..

    1. In that case tell them you will call policy on account of “Fraud” . They just cant do this . !

  108. Sandip Sabnis says:

    nice info as always Manish….!!
    Thanks

  109. giridhar says:

    Thanks, Manish. Very useful information. I think if you confront an established restaurant they will honour your argument but if its a small place you will be lucky to even make a point. And everybody will be staring at you as if you are from Mars and your own friends or family will be discouraging from making it an issue.

    1. True . Thats your choice on what you want to do in a situation 🙂

  110. kriskrohan says:

    Thanks,Manish for such a great information.

  111. VIKRAM GAJJAR says:

    Dear Manish
    I wonder,weather what ever Service Tax/VAT collected by Restaurant is deposited in respective Govt Department by them?
    May be it is printed on bill and collected from customers.
    Please shed some light in to this if possible.
    Reg
    Vikram

    1. their service tax number should be mentioned in the BILL , if your revenues goes up by 10 lacs, then service tax registration is compulsory anyways .

      1. Jwalant Desai says:

        Dear Manish
        Whether there any system which can confirmed our paid service tax , VAT etc reached to state govermnet / central govermnet.
        I am wondering why UID (Uniq identification number ) not coming for every transation we do.
        Then govermnet revenue will increase & frauds by restaturant will reduce.

  112. mahesh says:

    hi Manish,

    what to do , when they charge me more?

    Mahesh KV

    1. You can refuse to pay more , they should call the police if they want, tell them

    1. No Anand

      Its a common topic many websites have written about. Also seems like that article has come before our article . There are tons of other articles on same topic which were written after facebook circulation of some wrong information.

      Manish

  113. Anil Kuppa says:

    hi Manish,
    I have a question on the cost of packaged goods such as cool drinks in eateries/restaurants. Are restaurants allowed to charge exorbitantly on packaged goods? I had earlier taken a video in a bakery here : http://www.youtube.com/watch?v=BzXuHwpmm6Q&lc=yyQxe1ds8RTIRpe1c_9Fass2ENCK8OGGdAbqpMYtQjw

    Isn’t there any limit on the cost of packaged goods if I buy in a restaurant?

    1. If you are enjoying all the benefits of hotel by sitting there , enjoying you meal , then they can charge you that. But if you have just gone there to buy some packaged item and leave , then they cant charge more than MRP

  114. Anil Kuppa says:

    Hi,
    I have a question regarding the cost of packaged goods such as cool drinks. I had earlier gone to a bakery and the bakery charges the customers a rate much higher than MRP. You can check out my video here: http://www.youtube.com/watch?v=BzXuHwpmm6Q&lc=yyQxe1ds8RTIRpe1c_9Fass2ENCK8OGGdAbqpMYtQjw

    I wanted to know if the restaurants/bakeries are allowed to charge high amount on packaged goods.

  115. pankaj says:

    Nice article Manish …..good to know important stuffs

  116. Joel Trinidade says:

    Dear Manish,

    You mentioned about feelings after seeing your bill infalted by 20-30% but my experience at the rogue Pizza hut (kora kendra borivali ) takes the cake about what they charged me , Service tax , VAT, SERVICE CHARGE (I guess it was there dont remember now) & a special tax known as CT . I enquired with them that what is this CT Tax ,the staff told me that CT was carbon tax charged on aerated drinks. What irritated me most was that I had taken a pre designed standard meal with soup . Instead of soup they offered cola and then they had the audacity to force carbon tax on me.

    A lot people dont even check properly what charges they are paying & they make a fool of themselves without realising .Unless & untill we raise our voice againt this injustice….we will be foolishly paying heavily…JAAGO GRAHAK JAAGO

    Regards
    joel

    1. Thanks for sharing your case with us Joel !

  117. Ram says:

    Nice article Manish though I doubt how many people have the patience to work out the amounts and then argue with the hotel staff if it’s incorrect! The attitude of the staff will be as if we’re trying to get a discount (you know what I’m talking about)

    1. VIKRAM GAJJAR says:

      Let some IT guy/co devlop a APP for this and which can be uploaded in mobile.

    2. True 🙂 .. ANything “right” is always tough !

  118. manyam says:

    Thanks manish for sharing this. Good information. Most of us ignorant to check tax session while paying the bill.

  119. Sumeet Sali says:

    Thank you Manish.
    The article was indeed very helpful and I hope to make it useful too, though I doubt there will be a few restaurants out there who really practice hospitality without any pretence.

    And thanks to other co-writers too, who through small additions made a large add-on to my knowledge.

    Thankyou all.

    1. THanks Sumeet for leaving your comment 🙂

  120. bemoneyaware says:

    TIPS stands for To insure prompt service though why it is paid at the end of the meal I can’t comprehend , may be for the next visit.
    Service tax net includes almost all services that comprise a huge chunk of the household consumption basket, your mobile bill etc
    Service tax was imposed for first time on 3 services with effect from 1-7-1994 and its scope is increasing every year. As on 1st May, 2011, 119 services are taxable services in India. From 1st April 2012 only 17 items, such as essential education, public transport and services meant for agriculture, are exempt from this tax.

    The Service Tax collections have shown a steady rise since its inception in 1994. The tax collections have grown manifolds since 1994-95 i.e from Rs. 410 crores in 1994-95 to Rs.71174.58 crores in 2010-11.The target for the year 2010-11 was Rs.69400 Crores and the actual realisation was Rs.71174.58 Crores, showing increase of Rs.1774.58 Crores (2.56%). There is a substantial growth in the assessee base from 3943 numbers in 1994-95. The revenue and assessee statistics from the year 1994-95 onwards onwards is given in our article Basics of Service Tax

    1. Thanks for sharing so much in detail !

  121. Harshdeep Mehta says:

    Appreciate your article.

    Some hotels are even more worse, they charge Service Tax on whole bill and in addition to that they square it off to forthcoming fifty.

    Once, I have had bill of 465 at “Up and Above, Chandni Chowk, Pune” which I paid by Credit Card, and I signed bill without adding any extra tip, but on my monthly statement it showed-up as 500, when I contacted them they did not entertain me at all, and then onwards I did not entertain them as well.

    1. But when you gave your credit card, what did the bill say ? 465 or 500 ? Because if its 465 , how can they deduct more ? I think you should check consumer court !

      1. Harshdeep Mehta says:

        It was 465. I had “Customer Receipt” of credit card.

        May I know how to file complaint in consumer court?

        1. Shib says:

          Try akosha.com

      2. Harshdeep Mehta says:

        I guess, they added 35 rs on “Merchant’s Copy” of CC bill after I signed it.

        1. Shib says:

          Whenever I sign my credit card merchant copy, I make a point to write the amount again myself, circle it, and sign below. That way, it keeps me satisfied that I indeed checked the amount… also, in case of a dispute or fraud, it may work as a proof that if it has no number and not circled, most probably it is fake and not signed by me !
          For consumer court cases, try http://www.akosha.com, they are good !

        2. bemoneyaware says:

          One way to avoid it for future is While signing the merchant copy specifically enter 0(zero) as TIP and show the total amount . It is difficult to change the amount then!

  122. brijesh mandavi says:

    Wow. what a superb information. I have never noticed such things on the bill earlier but now i will do.

  123. Venki says:

    Service tax calculation needs some correction in the content.

    Service tax @12% on 40% of bill amount.
    Education Cess 3% on service tax i.e. tax amount is @ 12.36%.

    Overall service tax on the bill amount = 0.4 x 12.36 % = 4.944 % on total bill.

    Hope it is clear.

    1. Have I not done the same ?

      1. Venki says:

        Please check this “4.944% (12.5% X 40%)”, needs removal of one digits and addition of two more digits.

        4.944% (12.36% X 40%)

        1. Ahh yea .. didnt realise that ! .. will fix it

  124. Srinivas says:

    Informative post, as always.

    It is true that manyincl. me) accept something as bible and dono hink twice about it. As inicated by you there are mny finer points for which consumer may be paying because of personl ignorance or ignorance/carelessness of the service provider.

    Thank you.

  125. gautham says:

    Thanks for this useful info! What about service tax in lodges? Should it be 12.36% or 5%?

    1. It should be 12.36%

  126. Tanmay Dutta says:

    Thanks Manish for your prompt reply. The water bottle was in packaged state (sealed). The bill showed that the price for the “mineral water” is Rs. 120/-. Please tell me, how I can take a step against them.

  127. Vinaya says:

    Very useful…no need to pay a tip from now on, in case there is service charge in the bill.

    1. Yes, no need for it 🙂

  128. Tanmay Dutta says:

    For a bottle of mineral water in a restaurant, I had to pay Rs. 120/- + Service Tax + VAT. The same water bottle is available outside at MRP of Rs. 15/-. Has the restaurant (or any other business entity) the legal right to charge more than MRP for the bottle of water (or as such any article). If not, then can you please tell me about how I can stop them from doing this?

    1. If its in packaged state (unsealed) , then they should not be able to charge for it more than MRP , but if its opened and given to you in glass, then its now a “service” , and can be charged for whatever price they want ! – see this http://www.hindustantimes.com/India-news/NewDelhi/By-law-restaurants-can-charge-you-more-than-MRP/Article1-858413.aspx

      Manish

      1. Tanmay Dutta says:

        Thanks Manish for your prompt reply. The water bottle was in packaged state (sealed). The bill showed that the price for the “mineral water” is Rs. 120/-. Please tell me, how I can take a step against them.

        1. But did you just went there to buy the water bottle ? I mean if you were sitting and dining and take all the benefits of ambiance and their service, then they are free to charge for it as per their wish – as per COURT !

          1. Pratyush says:

            If you buy food from them and also buy a sealed bottled water, aren’t the supposed to tax you on the food and just add the MRP of the water-bottle?

            1. Yes .. it should happen like that only !

  129. Pushp says:

    Very informative article, Thanks for enlightening Us..
    I have doubt regarding VAT, how it should be calculated?I have found that it is calculated on the total amount, not excluding packaged drinking water/cold drinks.
    Kindly clarify.
    Is this a valid statement from a restaurant: “Since we are keeping packaged drinking water/drinks cold, that’s why we are charging VAT on them.”
    I have one more query;
    In what circumstances, any restaurant can charge double the MRP rate of package drinking water??
    I have experienced many times, the restaurants charging about Rs.40-50 for 1l packaged drinking water(MRP-Rs.15-20).Is this legal?
    Please Help n Guide

      1. Prakash says:

        All other products VAT will be applicable on profit when it is resold.Why in food items we needs to pay it on entire amount (product+service charges) as input(purchase) VAT on vegetables/noveg is zero.

        1. I am not an expert on this actually. Please ask it on our forum – http://www.jagoinvestor.com/forum/

  130. anil nakra says:

    dear manish ji
    thanks for very useful information but practly it is not possible when you are with your guests relatives and you cant argue, we all know that owner of all hotels restaurant had haired GUNDAS OR YOU CAN SAY BOUNCERS , police of that area is already settled with monthly . I further add that no simple man can run the hotel with out gundas and police settlement
    we can only do that to complaint about it later to various authority
    have you any other suggestion

  131. anil nakra says:

    dear MANISH G

  132. Madhab says:

    I have noticed a few things in some of the Hyderabad restaurants –
    1. They round off the service tax part to 5% (I guess that is tolerable).
    2. Some of the restaurants do include the soft drinks (Coke, Pepsi) and on that they charge the VAT. This is definitely not acceptable.

    Thanks for the enlightenment, Manis !!

    1. Yes agree

      1st is fine

      2nd is not

  133. Srinivasan R says:

    Good explanation of the latest rules.

    However, what if the same restaurant has both a/c and non a/c sections/halls (clearly separated and has separate doors for both) and I eat in the non a/c section of it?
    Do I have to pay service tax?

    1. Yes, you still have to . I can understand that you are not eating in AC section, but the law only says that Restaurant should have AC , they dont say customer should consume AC while eating. But that does not mean hotels can put AC in the kitchen and say – “see – we have the AC” 🙂

      I hope you got my point

      Manish

      1. Sanjay Munjal says:

        Hi Manish, I came across the following. Your Thoughts?
        he CBEC has provided clarifications vide Circular No. 173/8/2013-ST., Dated: October 7, 2013 on various doubts and questions raised pertaining to Restaurant Services, which is reproduced here in below:
        Doubt 1. In a complex where air conditioned as well as non-air conditioned restaurants are operational but food is sourced from the common kitchen, will service tax arise in the non-air conditioned restaurant?
        Clarification – Services provided in relation to serving of food or beverages by a restaurant, eating joint or mess, having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year (hereinafter referred as ‘specified restaurant’) attracts service tax. In a complex, if there is more than one restaurant, which are clearly demarcated and separately named but food is sourced from a common kitchen, only the service provided in the specified restaurant is liable to service tax and service provided in a non air-conditioned or non centrally air- heated restaurant will not be liable to service tax. In such cases, service provided in the non air-conditioned / non-centrally air-heated restaurant will be treated as exempted service and credit entitlement will be as per the Cenvat Credit Rules.

        1. This is a bit advanced .. I am not aware upto this level .

  134. NAGAMOHAN says:

    Dear Manish,
    In one of the restauramts at NOIDA I paid the following taxes on 02nd july2012
    The total bill for food items alone is Rs.550

    (a) Service Charge-10% – 55
    (b)Service Tax-8.652% – 52.34
    (c)VAT-12.5% – 75.63
    (d) Additional Tax-1% – 6.05
    (e)PFA-NGO-(Flat Rs.10) – 10/

    The total bill amount with taxes 749 which is 36% Higher than what I eat.
    I dont understand what is meant by Additional Tax and PFA_NGO for a flat Rs.10 .As per your calculation logic it should be Rs29.90 for service tax but they levied me Rs.52.34/

    Thanks for giving a good insight on the subject

    Regards

    1. Which hotel was it . Seems like its wrong .

      Service tax has to be 4.944% only and cant cross that. because its central govt that . Cant deviate from state to state basis .

      You need to ask them what is that 1% extra tax. It might be some local tax in delhi . Also that Rs 10 is something they give in charity on your behalf. Was it written in Menu that it will happen by default ? Did they ask for that ? If not, its just not fair, you should ask them to explain it ! . and threaten them about consumer court case !

      Manish

      1. Sattic says:

        1% is the additional tax charged in Noida. It is for Metro development and quite legal.

      2. NAGAMOHAN says:

        I dont remember whether Rs 10 they give in charity on my behalf was written in Menu card. since this transaction happened almost a year before. Since I was not aware about the service tax component i have no idea on that day so i paid whatever they charged but 36% higher than what i eat was not comfortable to me on that day.Thanks for your initiative in bringing the matter with a clear cut calculations so that here after i can raise my concern with the restaurants.

  135. Satyam Singh says:

    Do we need to pay VAT for the parcel…………..???????

    1. Yes, you still need to pay VAT , but service tax is to be paid or not is still very fuzzy , i was not able to find out the answer for that

      1. Shib says:

        I ate at Pizza Hut and they added the service tax. But once when I carried the food myself, they didn’t add service tax. Hence I suppose, service tax should not be levied if you don’t eat in their premise or don’t want it delivered to your place.

        1. Definately ! .. You are not suppose to pay service tax on Parcels and Take home items !

          1. Niks says:

            what the Service Charge in this case ?
            do we still need to pay the Service Charge even if its a take away ?

            1. I think service charge should not be charged incase of take away. Clarify with the restaurant on this

  136. junaid says:

    Thanks for the valuable info

  137. Kranti Goyal says:

    Hi,

    Thanks Manish very useful information. Please provide following information also-

    1. What to do if some restaurants are not clear about this rule or try to avoid it where to complain this?
    2. Link you provided about official gadget is sufficient to show restaurant about service tax rule.

    Thanks and Regards
    Kranti

    1. Kranti

      If they do not agree and are not clear about it, tell them they should not be in business if they dont have bandwidth to be professional . Ignorance cant be excuse in these cases. Its about MONEY 🙂 . tell them you wont pay and they should call POLICE

      Manish

      1. Kumaraditya Sarkar says:

        And the police will come and compel you to pay what the restaurant demands. There are different kind of “Services Charges” 😛

  138. Nilesh Mundale says:

    Thanks Manish for this value addition.

  139. Mohammad says:

    Why do we even have to provide tip to the waiter? Don’t they get a salary from the restaurant owner?

    1. Mohammad

      The TIP which you pay from your pocket is 100% in your hands , you can give it or avoid it . Regarding service charges , its clearly mentioned in the Menu, if you are not comfortable with it, better avoid the restaurant, but they are free to charge it if they want, now its upto you to decide what you need to do !

      1. Anand says:

        What if hotel owner doesn’t pay the vat excatly for the business done. What will be there punishment.

        1. You will have to explain about it to the VAT inspector at some point in time !

    2. Mohammad, in the food and hospitality sector, in most cases, the salary is always mentioned as a fixed sum + tips. Its not just the waiters, even office staff gets a cut of the service tax that they collect.

      In the U.S. some states even set their minimum wages differently for tipped and non-tipped employees, see this: http://www.dol.gov/whd/state/tipped.htm

      Lets just say, its part of a custom. A way of showing your respect for giving you good service. And its a motivation for the waiter / doorman to serve you better.

      In some countries, (like parts of Australia), its not polite to leave a tip. In others, its impolite not to.

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