The recent googly on service charge being optional by the Department of Consumer Affairs has thrown customers out of whack. While they rejoice on social media about paying service charge only if they like the food and service, restaurants have made it clear that service change is mandatory.
Even apart from service charge, there are many other taxes that a customer has to pay when he eats out. These charges are sometimes more than the number of food items ordered, which is why understanding what each of them means is all the more important.
Here is a handy guide to check what you’re paying the next time your server hands you your bill.
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The very first thing to know about service charge is that it is not a tax, hence not compulsory to pay. Restaurants usually levy 10 percent of the total bill amount as service charge. However, you are not legally bound to pay this fee.
According to the central government, the service tax across all services is 14 percent. Restaurants are known to provide goods as well as services, hence the government subsidises 60 percent of the bill. In effect, this leaves only 40 percent of the total 14 percent service tax for customers to pay. This comes to 5.6 percent service tax for restaurants to charge.
Swachh Bharat Cess and Krishi Kalyan Cess:
If your restaurant charges 6 or 6.1 percent service tax, you can assume that the establishment has added Swachh Bharat Cess and Krishi Kalyan Cess. Separately, their tax rate is 0.5 percent but after subsidy the rate comes to 0.2 percent for each cess.
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Value added tax is levied by states and the percentage differs depending on which state the restaurant is based in. To add to the confusion, the VAT rate for alcoholic drinks differ from food and beverages as well so keeping track of them can get positively cumbersome. Another distinction is the fact that sometimes service tax is charged on service charge by some establishments as well. VAT, on the other hand, is charged only for the food and beverages you order.
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