How restaurants dupe customers in the name of service tax and service charges

Each time you dine out, the bill that is handed over to you has several components ranging from service tax to service charge to value added tax which raises the amount to be paid up by several notches. While nearly every consumer is bothered by multiple additional charges, not all know the difference between these supplementary charges levied on the bill.

Service charge: These are the charges that are levied by the restaurant for the services rendered to the customer. This portion of the bill goes to the restaurant. The establishments are free to charge any amount as service charges as there are no guidelines provided by the tax authority. The charge varies from 5% to 10%. This amount is equivalent to the tips that people usually give to waiters. The charges are supposed to be shared among the staff.

The ground rule is that if the menu mentions service charges, they have to be paid but if there is no mention of any such charges, the customer has the right to question them.

Service tax: It is the tax levied by the government on the services rendered by restaurants. Service tax is same in all states. The service tax rate has been hiked from 12.36% to 14% from June 1. The restaurant must be air-conditioned for the service tax. The problem here is that most of the customers are taxed at the full bill and not on the 40% of the bill as directed. To make things simple, service tax should be 40% of the total bill. Hence whenever you see service tax on the total bill exceeding about 5%, you can question it.

Service tax came into effect in 1994 and was introduced by the then Finance Minister Dr Manmohan Singh. Earlier Service Tax was payable only on a specified list of services but Pranab Mukherjee while delivering his budget speech on March 16, 2012 announced that this Tax would be applicable on all services except the negative list of services.

VAT (Value Added Tax): There is another tax called VAT that is state specific. The rates can be as low as 5% and as high as 20% depending upon the states. Moreover, VAT for food items and drink are different. Many restaurants might club food items and drink and charge a flat rate on the total bill. In such cases, it is good to ask for separate bills for food and drinks. This should clearly show the different VAT for both the items.

While most of the times, nothing can be done about overcharging but customers can always question and explain the tax structure to get the bill corrected.