What are the taxes on a restaurant bill?
Most of us think that when we dine outside in a restaurant only service tax and VAT are the leviable taxes but there are few other taxes which most of us see in the bills but never bother to know the logic behind them.
Till March, 2013 restaurants fulfilling both the conditions i.e. having centralized AC system and liquor license used to come under the purview of service tax but with effect from 1st April, 2013 if any of the above condition is satisfied then that restaurant is liable to charge and collect service tax on the bills, thus widening the scope of service tax and making the dining outside costly.
So it becomes necessary to know the components of bills that can be avoided or can be argued if not charged accordingly. Let’s take a look at the various taxes and its implications on your bill.
Why there is Service Charge? This is first question comes into mind of every foodie after seeing the bill because the service charges are not nominal; it is 5% to 10% of total bill amount (meal charges). Suppose the total price of food you had is Rs.1,000, the service charges would be Rs.100 i.e. 10% of Rs.1,000 but this is not all, now this service charge will also form part of the amount on which service tax and VAT is charged. So effectively the service charges comes to
Service charge is a form of TIP which comes added in bill but in case you feel that you are served well then you can add more, but, remember you have already tipped through the service charge.
This is most common and probably known by every foodie who loves to dine outside. Service tax is charged on the 40% of total bill amount plus service charges (meal charges inclusive of service charges) at the rate of 12.36% (12% service tax and .36% cess) which effectively comes to 4.95%.
Remember it is necessary for restaurants to charge service tax on bills but it is not necessary to show service tax charged in the bill. For instance Sea Lounge at the Taj Mahal Palace in Mumbai doesn’t levy a service charge; they include service tax in the food directly and pay the tax to the government.
Value Added Tax:
Value added tax is levied on the sale transaction within the state. It is levied by the restaurants because they are selling food items. This is usually levied at 5% to 20% on the total bill amount inclusive of service charges (meal charges plus service charges) but only on certain items which also varies from state to state.
Two types of cess i.e. education secondary and higher education cess are also levied at the rate of 2% and 1%, which we have already added in service tax rate.
Sometimes restaurants add a nominal amount for Charity purpose. Few restaurants mention that on the bill but some restaurants believe that person who can afford dining of Rs.1000 does not bother about Rs.10. So it is always advisable to read the fine print.