GOING TO RESTAURANT CHECK YOUR BILL FOR TAXES BEFORE YOU PAY

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Not everyone is aware about Service Tax and VAT Taxon restaurant bill. Article provides detail analysis of your restaurant bill for Service charge, service tax and VAT. Most of times just taxes and the restaurant's service charge can constitute 30-40% of the food and liquor cost.

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Going to Restaurant Check your Bill for Taxes before you Pay

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Service charge is not the same as service tax. Then what is Service Charge?

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The "service charge" which some restaurants may add in the bill is not tax and is not levied by the government. It is collected by the restaurants for the service rendered to you and vary from 5% to 10%. You need not tip the waiter further. You can question the restaurant if the menu does not explicitly mention the service charge. . Some restaurants levy it and it's the equivalent of a mandatory tip.Both VAT and service tax is calculated on the total figure of food and liquor plus service charge. Hence, a service charge can inflate your taxes in overall bill.

An air-conditioned restaurant will charge you 5.6% of the total bill as service tax. What is Service Tax and How it is calculated?

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From 2013 onwards, all restaurants which have air-conditioning or central air heating are required to levy and collect service tax. Do note if restaurant has both an AC and nonAC section, merely by sitting in the non-AC section, you cannot escape service tax.The Central Board of Excise & Customs has provided a leeway only where several restaurants are housed in a large complex. If a non-AC restaurant in such a complex is clearly demarcated and has separate branding and billing, then even if the food is served from a common kitchen, customers of this non-AC restaurant do not have to pay service tax. Remember this when you stop by at the nonAC coffee/ tea shop in a mall.

The restaurant bill comprises the meal cost plus services such as waiter service, ambience by way of AC,etcThe cost of such services is built into the price of the meal. As it is difficult to segregate between meal costs and service costs, the government provides for a 60% abatement. Only 40% of your bill attracts service tax, which at the current rate of 14% works out to an effective rate of 5.6%. Remember service tax cannot be charged on the full bill amount, it has to be charged on 40% of the bill amount including service charge

Further The Finance Ministry has made it clear again that restaurants, eating joints or messes which do not have the facility of air-conditioning or central air-heating in any part of the establishment are exempt from service tax. This means these restaurants cannot include service tax in the bill.

VAT (Value Added Tax) is levied by each state government and may differ

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Service tax is a central levy, whereas VAT is a state-specific tax on food and drinks, with each state specifying its own rate. The rates may also differ from item to item. VAT is applicable on food items prepared in the restaurant and so the restaurant cannot charge VAT on packaged items or water bottles. VAT rates are different for alcoholic beverages and other food items and is applicable only on your final bill.Also, if the restaurant has levied a service charge, your VAT payout will increase, as VAT is computed on the meal or liquor cost plus the service charge.

Both VAT and service tax is calculated on the total figure (which is food and liquor plus service charge). Let’s understand this with an example of a restaurant bill for an amount of food Rs 1500 and Liquor Rs 2200/- . Service charge is applied on total bill, that is Rs 370/- Service Tax is Applicable on Full Bill @5.6% which comes to Rs 228/-. VAT rate for food and Liquor is different in most states with higher rate on liquor. So double check that liquor VAT rate is not applied in food. In our Example both are calculated separately. So before going in restaurant to know the basic of taxes and cross check that you are correctly charged.

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Source: Income Tax Act, Circular, News