Eateries charging ‘service charge’ likely to be taxed


‘Service charge’, according to a Government notification, is voluntary on the part of the customer. But Eateries are found to be mandatorily charging the tax.  Customers/consumers are forced to pay the ‘service charge’ (which is in lieu of a tip to the bearer), even if they were unhappy with the services rendered.  The ‘service charge’ was meant to be distributed equally among the staff as an added bonus.

Nowadays, Restaurants and Eat-outs plague customers with additional ‘service charge’. Over and above 12.5% VAT and 6% Service Tax on food/drinks, restaurants charge upto 20% service charge.

Service Charge, not mandatory, don’t be fooled! Pic Credit: simple tax india

Many complaints from consumers led the Consumer Affairs Ministry to urge the Government to levy a tax on Eateries who mandatorily impose this charge on unsuspecting customers. Necessarily, as there was no guarantee whether the funds finally made it to the staff or filled the coffers of the owners.

Many customers seem uncomfortable with the additional ‘service charge’ notice being displayed at eateries. Though they could rightfully sue the establishments, they prefer to pay rather than get embroiled in long drawn legal battles. Some even feel compelled to pay to avoid embarrassment knowing that ‘service charge’ is not mandatory.

What does the government want?

The consumer affairs ministry wants the service charge collected to either be distributed among the staff. If not, it should be counted in taxable income, an official said. It has also urged people to move consumer courts if they find any restaurant slapping service charges.

Information source: NewsBytes