Service charge you pay at restaurants is not service tax, does not go to Govt

Next time you eat out at a restaurant or hotel, be sure to read the bill carefully and make the distinction between the “service charge” and the “service tax”. The Finance Ministry clarified in a statement on Tuesday that the “service charge” is not a “service tax”, which is levied at a rate of 5.6 per cent on the total bill. The “service charge” levied in the restaurants’ bills is retained by them and no part of it goes to the Government.

Some consumers have the misconception that the “service charges” are collected by the restaurant on behalf of the government as tax, it added. “It is clarified that these ‘service charges’ collected by the restaurants/ hotels/ eateries are retained by the restaurants/ hotels/ eateries and are not ‘service tax’ imposed by the government,” the Ministry said. 

Also, the restaurant is supposed to pay the sum charged as “service tax” to its staff. So next time you eat out, also inquire if the people who serve you actually get that money which is charged from you in their name. 

In case of AC eateries, the service tax at the rate of 14 per cent is charged only on 40 per cent of the bill amount. The effective service tax rate for serving of food or beverage by a restaurant is 5.6 per cent of the total amount charged.