Eateries 'pocketing' service charge may be taxed
New Delhi: Service charge collected by hotels and restaurants but not passed on to staff and workers will be liable to income tax in the hands of such entities, the tax department has said.
The department has asked the field offices to examine the books hotels and restaurants to see if there is any 'under-reporting' or 'non-reporting' of service charge collected by them.
The missive from the CBDT came after the Ministry of Consumer Affairs flagged that some hotels and restaurants are collecting a service charge from customers in a compulsory manner, which is in violation with the guidelines issued by the ministry.
The ministry also said that there is "every likelihood" that the service charge amount collected is not even distributed among staff and workers of the hotels and restaurants.
The CBDT which is the apex decision making body for direct taxes, asked the field offices to examine whether there is any under-reporting or non-reporting of additional income collected in the name of service charge.