Outlook : How to decode your restaurant bill?!

This is a must know how for every person who is dining out. It is our duty to be educated about the various taxes imposed by our country.

Maybe the next time you have the bill in your hand, you will be able to decipher it in a better way, than blindly paying off the amount...

Few excerpts from Google and economic times:  

Service charge

Service charge is collected by the restaurant for rendering its service to you. It is not a tax and is not levied by the government but purely charged by the restaurants. They are free to charge any amount as there are no guidelines, but it usually varies from 4 to 10 percent. It is corresponding to the tip which you would typically give waiters for a good service, so there is no need to pay a separate tip. However, one has to pay this amount regardless of not being happy with the service if the menu card mentions the charges clearly. But you can always question the charges if the menu card doesn’t mention it.

Service Tax

Service tax is different from the service charges mentioned above - it is a tax levied by the government. This is 14.50 percent and payable on 40 percent of your total bill, which includes food, drinks, service charge and served in an air-conditioned restaurant only. In simple words, service tax would be 5.80 percent (i.e. 14.50 percent of 40 percent) of your total bill. Make sure that the restaurant does not charge you more than 5.80% (of the total bill) as service tax and that it is an AC restaurant.

VAT (Value Added Tax)

VAT is only applicable on food items that are prepared in the restaurant as they add value before serving it to you. So make sure that you are not charged VAT on packaged food items or water bottles. VAT rates are different for alcoholic beverages and other food items and is applicable only on your final bill. Also, rate of VAT tax differs from 5 percent to 20 percent depending upon the state you are dining in, because it is levied and controlled by each state separately.

Let’s understand this with an example of a restaurant bill for an amount of Rs 1000/-.

Items Amount

Your Total Food Bill 1000
Service charge (assuming 4 percent) 40
Sub Total 1040
Service Tax to be levied on (40% of subtotal i.e. 1040) 416
Service tax @ 14.50% on 416.00 60.32
VAT (assumed) @12.5 of subtotal 1040 i.e. 130

Total amount to be paid (1000+40+60.32+130.00) 1230.32

Still some questions are open - why is service tax charged on home delivery items? Excerpts from TOI article:

Tax experts view that a bill for home delivery of food or a takeaway should not include any service tax. Explains Sunil Gabhawalla, chartered accountant and indirect tax expert: "While introducing service tax on restaurants in 2011, the government issued a clarification that the service tax levy is intended to be confined to the value of services contained in the composite contract and shall not cover either the meal portion in the composite contract or mere sale of food by way of pick-up or home delivery."

"Though not legally required to, some restaurants do levy service tax, even on takeaways or home deliveries, for various reasons. Unless the restaurant has a strong back-end record maintenance process, it becomes practically difficult to substantiate during an indirect tax audit, which portion of the revenue earned was via takeaways. The risk of litigation tempts some restaurants to levy service tax even when the meal is not served in-house. Also, in cases where restaurants levy service tax they do get a Cenvat credit, which they can use to offset indirect taxes they have to pay, thereby benefitting to an extent, in the process," adds Gabhawalla.

Keep dining !

~Bon Appétit!!