The issue of service charge has once again brought into the light the contentious practice of levying a voluntary cost mandatorily to the food bill.
A once discretionary practice seen as a gracious practice has become an obligatory add-on to the total bill in many restaurants today with no correspondence to the service and no grain of discretion.
It seems as if there is a bill for the food prepared in the kitchen, and then there is an extra charge for the food to be served to the table. On top of it, a third of restaurant-goers don’t even notice the service charge on their bills, according to a recent survey by LocalCircles.
In fact, many customers often mix up service .charge with service tax, which is a statutory levy under the GST. To understand the overall charges levied on one’s bill amount, it is important to know about the components that constitute the total food bill.
The following charges and taxes are levied on the total bill amount:-
1. Service Charge
2. A 5% GST on food services comprising takeaway facility. An 18% GST is levied if a restaurant is located inside a hotel where the room rate is above Rs 7,500.
3. Service Tax
While the government has made GST obligatory, the service charge is optional.
What is a Service Charge? Why is it levied?
A service charge is added to the total bill amount to be paid by a customer after eating food at a restaurant. It is a levy used by restaurants to pay their staff and workers and is like an incentive for them. A service charge is like a payment for the services rendered and is not imposed by the government. Usually in the range of 5% to 15%, a service charge is added to the total bill amount and can be refused by a customer. However, restaurants have made it like an obligatory tip that a customer is required to pay.
The service charge issue has been in contention for years now. Where the government has termed it as an “unfair trade practice” letting customers retain the right to decide if they want to pay a service charge or not, restaurant owners defend the practice stating that several declarations are made at the premises for the customers to know that they will have to shell out such a charge if they eat at their business.
"... a service charge is meant for the benefit of the staff and so, some establishments make a conscious choice to adopt a policy beneficial towards its staff members. Levying service charges is a general practice adopted across the globe. It is neither illegal nor violating any law," Federation of Hotel & Restaurant Associations of India (FHRAI) Vice-President Gurbaxish Singh Kohli said.
Why is Service Tax charged?
Service Tax is a statutory levy (imposed by the government) under the GST. It is levied on the service provider but ultimately is born by the customers utilising a specific service. According to a recent amendment, service tax will be levied only if the restaurant is air-conditioned. Earlier, a restaurant was required to have a bar too, but the condition has been done away with.
