Service Charges Billing in Restaurants Misleading – Facts Analysis

Picture: Service Charges Billing in Restaurants Misleading
Service Charges Billing in Restaurants Misleading


Service Tax At Restaurants – Very Important !!!
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.


The message talks about the unfair Service Charges levied by some restaurants and the fraud calculation of Service Taxes while billing, so as to gain extra money from the consumers. It is a fact.

In the year 2000, when the hospitality sector approached the Union Ministry of Consumer Affairs in India, the Department of Legal Metrology permitted the hotels and restaurants to levy a service charge on the MRP. Since then, most of the restaurants levy a service charge varying from 5% to 10% of the total bill, along with the official service tax, which is charged only for the services provided to the consumer. Following these changes, consumers often get confused about the billing process, and it is also a fact that some restaurants/hotels can mislead the mis-informed consumers with inappropriate, wrong and fraud billing as mentioned in the message.

Consumers need to understand that service charge is NOT the same as service tax. Service charge is charged by the restaurants/hotels for the services provided, while service tax is an indirect tax levied by the government on the services provided (on service charges; not on the total bill inclusive of service charges). It is also important to note that the restaurants, by law, must clearly display the service charges on the price list or menu inside or outside the restaurant. In case the service charges are not displayed, you might ask about it before hand. Also, as per their service charges, the restaurants must provide services up to the standards.

Therefore, before paying your bills at restaurants/hotels, it is a good practice to check for the correct and fair billing of service charges and the service tax levied on it.

Hoax or Fact:



Service charge leaves many restaurant-goers confused
By law, restaurants can charge you more than MRP

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Prashanth Damarla