Union Budget 2013-14: How Restaurants Can Overcharge You..!

Service Tax Vs Service Charge..!

Tax components have become a part of our restaurant bills to the extent that we rarely notice what all we'e paying for over the food cost. Most of us hardly understand the various taxes applicable on eating out.

To begin with, there are many who feel service tax and service charge are not different. It is not surprising if we do not know when or /  on what bill component both these are charged.

We ought to..!

Service charge is levied for the service provided by restaurants, that is, the serving of food.

Service tax is to be paid only on this service provided by restaurants.

This means the service tax of 12.36 % should be applicable only on the service charge.

 Mr. M S Mani, Senior Director (Indirect Tax), Deloitte India. "To pocket money from customers, many hotels / restaurants charge a service tax of 12.36% on the entire food bill, which is incorrect"

Given that many do not know the rates and its applicability, it is difficult to question the restaurant owner.

There are only two (2) main tax components to a food bill - service tax and value-added tax (VAT).

Even if service tax can be levied on the entire bill, restaurants get an abatement on it.

Assume there is 60% abatement; only 40% of the bill should attract service tax.

This might not always be the case because most dinners do not know about abatement or at least would not know the abatement rate on the relevant restaurant category.

Some might choose to apply 4.9% as service tax (12.36% of 40 per cent of the bill).

Advocate Shailesh Sheth said, "If you choose to sit in the non-air-conditioned (AC) part of a restaurant, you still have to bear service tax, as air-conditioning in any part of the restaurant premise will attract service tax. However, the food price will be lower in the non-AC part".

Some write 'inclusive of VAT (value-added tax) on the bills / menu. This means they have opted for a composition scheme under the government tax rule. This is allowed in three-star or / lower rated restaurants.

Here, the restaurant can charge 5 per cent VAT for a simpler accounting method. But, there are chances of your being charged 12% instead of 5 per cent, as restaurants do not need to mention the VAT rate.

Though it is difficult to know what scheme a restaurant has opted for, it is best to ask if doubtful.

VAT rates are state-specific and different for food &  liquor.

For instance, on food in Mumbai it is 12.5%; on liquor, it is 5 %.

Mr. Sachin Menon, Partner & National Head, KPMG India, said, "Make sure you are charged the right rates and insist on separate bills for food and liquor."

Excise rules do not allow restaurants to club food & liquor bills, as the VAT is different.

Since 2011, only AC restaurants serving alcohol have had to pay service tax. From April 1, 2013 service tax (According to Union Budget 2013-14) will be applicable on even food served by A / C restaurants.

The good news is that restaurants will now have to mention the service tax and VAT registration number on bills. This will show authenticity and accountability.

"If needed, you can file a complaint with the VAT anti-evasion authorities, if you suspect that you are being charged more and the restaurant is retaining the excess tax collected," Mr. Sachin Menon said.

Src: BS

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