Have you ever noticed that when you go to a restaurant and place order; you calculate the expected bill amount in your mind: But when the bills comes it is more than you expectation. I am sure it happens with all of us. Have you ever considered why? Why the bills always come about 20-30% extra? Sometime this put you in awkward situation if you have less money and forget your credit card at home.
Parts of Restaurant Bill
Here is the truth. Whenever you go to restaurant then please study the bill. Normally there are three sometimes four type of charges in the bill.
1. Food Charges (This charge is for food you ordered and the price is same as in Menu)
2. Service Charges
3. Service Tax
First part is actual and known by you as you ordered the food. So we will not discuss it here.
Service Charges: Compulsory tip
Second part is service charges. This charge is compulsory tip which restaurant charges from its customers for emptying their pockets. It is extra charge by restaurant owner to enjoy your meal. Some restaurant charges it and some not. Usually it is around 5% to 10%. It is not uniform as it doesn’t govern by any act. So restaurant owner can charge any amount in this. As per rules, service charge must be written on Menu on must be displayed so that customer can see then only restaurant can charge this in bill. If it is not written or publically displayed then you can object on this charge. I think it must be added in food charges but this make charges looks high so clever marketing strategies they reduced this from Menu and added as charges, so that food charges don’t look high. Similar strategies like some shoes companies were selling their shoes on 699.99 this brought their shoe below 700/- but as you can see there is no difference. Same happens here.
As I told before it is compulsory tip. So feel free to pick full money which the waiter brought back after paying bill because you have already paid tip in term of service charge or if you are paying by credit or debit card you can simply pick your card back without giving any extra money. My words: when they have charged their tips already then why on earth I should give a single penny to them.
Service Tax on enjoying Restaurant facility
Third part of bill is service tax. This is charge applied by government on the services which you are being provided in restaurant. This was applicable from 1st April 2013. This is applicable only on restaurant which has air conditioning facility. Circular no 173/8/2013 dated 7th October, 2013 clearly says that if restaurant is not air conditioned then no service tax applicable. If there is centralized air conditioning system in premises and restaurant is not having its own air conditioning facility then also service tax will be applicable that’s why food giants like Pizza Hut, Mc Donald’s etc which are situated in Malls charges service tax. So if a restaurant where air conditioning facility is not available charges service tax on your bill then you can object to pay service tax as it is not applicable on your bill.
Service Tax is applicable on services and we goes restaurant for food then why we are paying this tax? This question comes in mind so answer is when you are eating in an air conditioned restaurant then not only you are purchasing food but also enjoying the air condoning facility and services of staff. So service tax is applicable only on those services not on sale of food. But this calculation is impossible because from food bill you can’t tell how much part is for food and how much is for services. So service tax department gave abatement scheme on this. Service tax is 12.36% but there is 60% abatement so only 40% will be taxable for service tax. Now the service tax will be 12.36 x 40% = 4.944%. For calculation of this service tax full food amount and service tax will be included. So if your bill was 1000/- and 10% service tax was charged then bill will be 1000+100=1100. Now service tax 4.944% will be 54.38 and total bill amount will be 1154.38. If the restaurant owner is charging service tax on full amount you can take him in consumer court. It happened in Chennai when a restaurant owner charged service tax on full bill amount then the customer took him to consumer court and court decided that restaurant owner will pay 12000/- for charging Rs 71.79/- extra as service tax.
VAT on Food Value purchased
Fourth and last part of your bill is VAT (Value Added Tax). This tax is applicable on selling food which is manufactured in the restaurant. So if you are ordering any packaged food which is charged on MRP then VAT is not applicable on that item. You must ensure that while calculating VAT the amount of that packaged item must be reduced because in MRP Vat is already included. Restaurant can’t charge VAT on VAT including in MRP. One more thing if restaurant is charging VAT then there must be TIN mentioned on the bill.
VAT is governed by Sales tax department of states so this is different in all states. I took Delhi for this example where this is 12.5%. You can think that like service tax which is on 40% on food bill VAT must be on 60% of food as it is only for food. But you government is not merciful in this. As per VAT rules VAT is applicable on full bill amount which comprise food + service charge. So on bill of 1000+100 service charge VAT 12.5% will be 137.50.
Result: A high bill due to VAT and Service tax on Restaurant bill
So in above calculation, the total bill will be:
Food Charge- Rs. 1000
Service Charge 10%- Rs. 100
Service charge 4.944% - 54.38
VAT 12.5% - 137.5
Total Bill – 1291.88 or 1292/- by rounding off
It is 29% higher than your actual bill. This is how we are paying a lot of money in taxes without actually knowing the reason and amount. I hope next time when you will go to restaurant you will judge the exact amount of the bill which you are going to pay.
By: CA Prashant Gupta