Customers can refuse to pay “Service Charge” at Restaurants – Govt

POSTED BY manish ON January 2, 2017 COMMENTS (30)

Govt has clarified that the “service charge” in optional and customers can refuse to pay that if they feel like.

From some years, most of the restaurants and hotels have started charging “Service Charge” along with the other taxes in their bills and we customers due to lack of understanding feel obligated to pay it.

However the govt has issued a notification today which clearly mentions that if customer is not satisfied with the experience at the hotel or restaurant, they can choose to not pay it. Below is the video clip of this news.

Govt Notification

“A number of complaints from consumers have been received that hotels and restaurants are following the practice of charging ‘service charge’ in the range of 5-20%, in lieu of tips, which a consumer is forced to pay irrespective of the kind of service provided to him,” the ministry said in the notification below

Note that the Hotel Association of India has themselves clarified this point.

Service charge is not mandatory to pay in hotels and restaurants

Why do restaurants charge “Service Charge” ?

For those who dont know this, service charge was mainly introducedΒ to replace the tips given to the workers (waiters etc) , so instead of your giving the tips, the restaurants charge a fixed charge (5% – 20%) and its distributed among the employees.

However there is no strong proof that most of the restaurant owners actually distribute it among employees. Also irrespective of the service and experience, the customers pay this service charge.

But now after this clarification has come, you can freely tell the restaurant that you will not pay this charge if you didnt have a good experience at the hotel or restaurant.

Important point to Note

  • Service Charge goes to restaurant kitty
  • Service tax goes to Govt
  • Service Charge can be added to the bill only if its mentioned in the menu
  • Service charge is not mandatory to be paid if you dont want to pay it

What are your views about this topic and notification?

 

Get FREE call back from Jagoinvestor Team

First Name*
Email*
Mobile*
City*
Yearly Income*
Time to Talk*
Which Package*
Your Requirement
Lead Source
Lead Status

30 replies on this article “Customers can refuse to pay “Service Charge” at Restaurants – Govt”

  1. Suhas Patil says:

    Hello Manish and all on JI

    I had pizza at Pizza Express at Viviana Mall, Thane, day before yesterday. When they handed over bill to me including Service Charge, I kindly refused to pay. To my surprise, they immediately handed over to me a bill without service charge and further they gave discount to me. I was thinking that some issue will go on but it was changed without questioning me anything.

    1. Thats great to know πŸ™‚ … I am sure big companies will follow the orders from supreme court !

  2. Hayat Rana says:

    I feel paying service charge doesn’t pinch me but service tax on service charge is wrong practice as we want best service to be provided I am sure there is nothing without price and we wish to be getting recognised by staff or outlet

    1. Thanks for your comment Hayat Rana

  3. Bhavin Gandhi says:

    Can we refuse to pay Taxes if we dont like the services provided by Government? Can we refuse to pay toll taxes if road conditions are not good?

  4. Anjan says:

    The government shouldn’t leave ambiguity in such matters. It would only lead to confusion and nothing else. Restaurants would never give up their profits. So if many people start refusing to pay service charge, they would add extra to meal prices to cover it. The only losers would be customers who agree to pay service tax on top of it.

    Personally I think there should be no tipping system in restaurants. The US system of tipping sucks. It’s a constant source of harassment to the customers. The percentage of tip itself is not fixed. It’s best to just give fixed salaries to the waiters and cooks and price the meal accordingly.

    1. Yea i agree with you.

      If the service charge is mentioned and included in the bill. I think 99% of the people wont like to create a scene and not pay it, rather they would like to just let it go ! .. Thats why , its better to just let it go ..

      1. Anjan says:

        I think Service Charge should be abolished altogether. All overhead costs necessary to run the restaurant should be included in the cost of the dishes. Then people can easily take a look at the food menu of different restaurants and compare prices. Currently, different restaurants impose varying levels of service charge & it’s never mentioned on the menu. So after eating as per your budget, you get a nice shock when you see the hefty service charge added to the bill.

        1. Thanks for your comment Anjan

  5. Manish Shastri says:

    We went to Papa Jones Pizza outlet in Pune, Phoenix Mall. We said that we dont want to pay service charge, they said no you will have to pay. We denied our request of not paying service charge.

    I think there must be grievances hearing and quick action taking office against such cases. Or else, government should mention that from today onward restaurants can’t charge service charge to customers, remove it completely.. What is your opinion?

    1. The problem is that if you need resolution for this at higher level, then you need to complain to RBI or other association, but most of the people dont have that much time and motivation. I am not sure whats the solution at the lower level.

    2. Kiran says:

      Finally did you pay the service charge or not? and what the pizza outlet guys told?

  6. Ganesan says:

    Immediately, Most of the pizza centres will be affected on this new rule along with some restaurants in malls

    1. Thanks for your comment Ganesan

  7. Joel says:

    I am happy with this notification although their is a little ambiguity but nevertheless it was needed .

    1. Thanks for your comment Joel

  8. Dr Koustubh Chakraborty says:

    A very welcome step by the Govt. Imposition of Service Charge at an arbitrary rate decided by the restaurant management was unfair, amounting to “Dadagiri”.

    If I am satisfied with the food, ambience and service, I will happily leave a tip depending upon the amount I feel comfortable with. It’s amount must be left to the discretion of the patron — this will push the level of service up.

    A mandatory charge that will be received irrespective of the level of service will breed mediocricity !

    1. Thanks for your comment Dr Koustubh Chakraborty

  9. Rahul says:

    What action can be taken by customer if Restaurants still asks to pay service charge ?

    1. YOu can refuse to pay it by giving this notification.

    2. heyjoe says:

      It is a pro-consumer step taken by the government. No restaurant should bill for ‘service charges’. Let it be the customers’ choice, and believe me, most customers tip the waiter, after reading their body language. And that’s bad expectation on the part of the waiters… and waitresses.

      1. Thanks for your comment heyjoe

  10. RajendraPrasad says:

    In practice, it may be difficult to get a bill by excluding this service tax. Most of the restaurants and hotels people will force to pay the whole. It may take more time to reach this kind of benefits/provisions to the end customer.
    As mentioned, many restaurants are not paying/distributing these service charges among their staff. This service change is going to the restaurant owners kitty. The clarification provided is useful and we can raise our voice when we saw the bill. However it will take more time to see these kind of changes in reality.

    1. The only solution to this I guess in the short term is to check with the restaurant if they have service charge and clear with them before hand that you will pay it only if you are satisfied.

      However I wonder how many people would do that!

      1. RajendraPrasad says:

        Yes, It is difficult to find the more number of people doing that. There may be 5 to 10% people will do that and inform the restaurants upfront.

  11. Ganesh says:

    Good move by government. Already the Menu Charges are exorbitant, so why should the consumer pay service charges ? Paying tip is a overhang of colonial era. Why only tips for hospitality industry ? Are they not getting their salaries ? Taking tips is below dignity and offering tips is above arrogance.

    1. Thanks for your comment Ganesh

  12. Prithvi says:

    Such optional charges rarely make a big difference. The waiters look at you like they want a tip regardless of this unless you go to a top tier restaurant.

    There should be a clear rule, yes or no. Let restaurants raise the prices of the dishes by 10% if they charge 10% service charge.

    That’s a more sensible method in my opinion.

    Just My opinion.

    1. Makes sense πŸ™‚

Comments are closed.

Subscribe to Emails

More than 1,50,000 investors across the world trust & read Jagoinvetor articles. Subscribe for emails updates and get instant access to a free ebook.

Jagoinvestor is one of the most trusted personal finance websites which writes on various topics like financial planning, mutual funds, insurance and banking.