Service Tax killing mango people’s wish to eat at a

restaurantBy,Rajeshwari Gudikandla

After a day full of….

Its Friday…

You are in a restaurant. You had nice full course dinner with soup, main course, followed by dessert. You checked the prices before and ordered.

However, when the bill came, you were little shocked. The numbers did not match till you came across few items called

service tax and service charge which inflated the bill by about 15% to 20%.

In your mind, you wish to burn the waiter in flames..

Since this is Friday evening and you have been waiting for this for the whole week, you don’t question it and pay.

We have an uncanny ability to screw simple things and make it complex. Taxes and charges on seemingly simple stuffs like

food and drinks are one such thing where customers are taken for granted.

Let’s understand few terms that we see on

our food bill often but do not understand.

This is charged by the restaurant for the services rendered to you. This money goes to the restaurant. The establishments are free to charge any amount as service charges as there are no guidelines provided by the tax authority. The charge varies from 5% to 10%. Few restaurants don’t charge it. This is equivalent to the tips people usually give to waiters. If you are charged service charge in the bill, don’t pay tips as this charge is supposed to be shared among the staff.Most of us don’t bother about it even when we feel the charges are higher. One reason is that we don’t think anything can be done about it. Secondly, we don’t want to spoil our evening because of this and argue with restaurant manager. However, the ground rule is that if the menu mentions service charges, you have to pay. If it doesn’t, you can question it.

Many people confuse service tax with service charges. Service tax is the tax levied by the Government on the services rendered by restaurants. Service tax is same in all states. It is 12.36% on the 40% of the bill. The bill includes your food and drink and the service charge. The restaurant must be air-conditioned for the service tax. The problem here is that most of the customers are taxed at the full bill and not on the

40% of the bill as directed.To make things simple, service tax should be 40% * 12.36% = 4.94% on the total bill. Hence whenever you see service tax on the total bill exceeding about 5%, you can

question it.

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.

ExampleLet’s see how service charge, tax and VAT work with an example. Suppose you have dined in an AC restaurant and the price of food items is summed to Rs 900. You will be asked to pay service charges (goes to the restaurant) and VAT and service tax (goes to Government)

Items Amount

Bill of food item 900Service charge (assuming 6%) 54Sum Total 954Service tax to be levied on (40% of sub-total) 381.6Service tax (at the rate of 12.36%) 47.16576

VAT @ 12.5% of the sub-total 119.25

Total amount to be paid 1120.416

Many times, restaurants charge the highest rate on the total bill. This is general complaint by almost all the customers.

ConclusionMost of the times, we cannot do anything about overcharging. The reasons are not only our unwillingness but also the ignorance of restaurant managers. In many cases though, you can question these items and get your bill corrected. Please remember that this will not be easy. However, you can always question and explain this to the restaurant manager and get your bill corrected. There have been cases where customers were able to reduce their bill.