If you are one of those who love dining out but have been fretting over the hefty service charge levied by hotels and restaurants, then here is some good news for you. As per the latest clarification given by Food and Consumer Affairs Minister Ram Vilas Paswan, service charge on hotel and restaurant bills is totally voluntary and not mandatory now.
“The government has approved guidelines on service charge. As per the guidelines, service charge is totally voluntary and not mandatory now,” Paswan has reportedly said, adding that “hotels/restaurants should not decide how much service charge is to be paid by the customer and it should be left to the discretion of customer.”
As per the guidelines, the column of service charge in a bill will be left blank to customers to fill up before making the final payment.
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Here’s all you need to know about service charge and the impact on your food bills of the recent clarification by the government:
What is service tax and service charge
Service tax is a tax levied by the Central Government of India on services provided. Currently, service tax is charged at the rate of 15% uniformly throughout the country.
Service tax is collected by restaurants which have air-conditioning or central air-heating facility. The consumer pays the amount of service tax on the bill and it is then deposited by the restaurant to the service tax department.
“Service charge, on the other hand, is not defined under the service tax law, and is not required to be collected as per the law. Service charge is a practice that was started by the hotel chains/ restaurant owners for collecting tips on behalf of the staff that serves in these places. Therefore, service charges are not a tax collected on behalf of the government and thus is not a government levy,” says Gautam Kapil, Chartered Accountant, V K Kapil & Co.
What was the practice prevalent before?
The practice being followed by the restaurants earlier was that they were charging service charge from the customer mandatorily by forming it a part of the bill. Once the service charge was formed a part of the invoice, it became chargeable as part of the service component. Customers were being looted on account of this tactful game plan of the restaurants.
Impact on your food bills with the clarification by the government
This issue has been in the news for a long period of time with many consumer forums & associations complaining about this unlawful charge on the consumers. Hotels and restaurants were charging ‘service charge’ in the range of 5-20 per cent.
Earlier, in January 2017, a similar statement as issued by the consumer affairs minister that service charge is voluntary that you can choose not to pay them, if you are not satisfied with the service you receive. “This had led to a lot of confusion as hotel chains misinterpreted this statement by saying the minister has clarified that service charge can be charged in the bill. Therefore, even when you were satisfied with the services, the restaurants would then put an ad-hoc high rate of at least 10% service charge on the service component of the bill, going up to the extent of 20% in some hotels,” says Kapil.
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But with the latest clarification given by Union Minister Ram Vilas Paswan, service charge is totally voluntary and not mandatory now. The minister has categorically said that there is nothing like service charge under the law and service charge is nothing but tips that are being collected by the restaurants.
The basic difference now is that restaurant owners cannot charge the customer any amount or percentage of service charge in the bill and it would be left at the discretion of the customer to put any amount he wishes to. As per the guidelines, the column of service charge in a bill will be left blank to customers to fill up before making the final payment.
“This is indeed a welcome clarification issued by the Union Minister in addition to the guidelines that are being released to the states to pass it on to the restaurant owners not to charge service charge in the bill,” says Kapil.