Can you say no to the restaurant service charge?

The issue of service charges has once again brought to light the controversial practice of levying a mandatory voluntary cost on the food bill.

A once discretionary practice considered a gracious practice has become a mandatory addition to the total bill in many restaurants today unmatched in service and without a grain of discretion.

There seems to be a charge for food prepared in the kitchen and then there is a charge for food to be served at the table. On top of that, a third of restaurant customers don’t even notice service charges on their bills, according to a recent survey by LocalCircles.

In fact, many customers often confuse service charge with service tax, which is a legal charge under the GST. To understand the overall charges levied on the bill amount, it is important to know the elements that make up the total food bill.

The following charges and taxes are deducted from the total invoice amount: –
1. Service fees
2. A 5% GST on food services including take-out meals. A GST of 18% is levied if a restaurant is located inside a hotel where the room rate is above Rs 7,500.
3. Service tax

Although the government has made the GST mandatory, the service charge is optional.

What is a service charge? Why is it taken?

A service charge is added to the total amount of the bill to be paid by a customer after eating in a restaurant. It is a levy used by restaurants to pay their staff and workers and it is like an incentive for them. A service fee is like payment for services rendered and is not imposed by the government. Generally in the range of 5% to 15%, service charges are added to the total amount of the invoice and can be refused by a customer. However, restaurants have made it a mandatory tip that a customer must pay.

The issue of service charges has been in contention for years now. Where the government has called it an “unfair commercial practice” leaving customers the right to decide whether or not they want to pay a service charge, restaurateurs are defending the practice saying that several statements are made on the premises so that customers know that they will have to shell out such a charge if they eat at their business.

“…service charges are intended for the benefit of the staff and so some establishments make a conscious choice to adopt a policy beneficial to their staff members. The levying of service charges is a general practice adopted throughout the world It is neither illegal nor violated any law,” said Federation of Hotel and Restaurant Association of India (FHRAI) Vice President Gurbaxish Singh Kohli.

Why is the service tax charged?

Service tax is a statutory (government imposed) levy under the GST. It is levied on the service provider but is ultimately borne by customers using a specific service. According to a recent amendment, the service tax will only be charged if the restaurant is air-conditioned. Previously, a restaurant also had to have a bar, but the requirement has been removed.

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