Why did I pay more than what I had eaten at a restaurant? That question haunts a lot of people and does take a lot of the fun out of what should have been a pleasant outing. To make you overcome that, and make for the best time possible while dining out, Anita Rastogi, partner, Indirect Tax, PwC decodes your restaurant bill. Simply put, in addition to the amount we pay for the dishes which we order at a restaurant, we also pay for service charge, service tax and VAT. These steps, by themselves, will substantially reduce your restaurant bills. Check it all out in 4 easy steps, including home delivery:
1. When all the eating has been done and the bill is presented, in addition to the cost of dishes, there is a service charge in the bill. Now, service charge is typically imposed by restaurants in lieu of tips awarded by customers. It is nothing but an organised and enforced way to collect tips for waiters and support staff. And there are no guidelines for this. It can vary from 4% to 20%, depending on the restaurant/hotel’s internal policy and sometimes mood. Service charge is not a statutory levy. It would be great if restaurants abolish the levy of service charge on invoices and instead allow customers to tip their servers as per their whim.
2. Next was the service tax. It is a central levy imposed on the provision of taxable services in India. Currently, service tax is chargeable on services provided by restaurants, eating joints or messes that have air-conditioning or central-heating in any part of the establishment in relation to serving of food or beverage. The charge for food served at a restaurant is a composite charge and it is challenging to separate the value of food and services. An abatement scheme is available under service tax, by way of which service tax is levied on 40% of the total taxable amount. Therefore, the effective rate of services becomes 5.6% (i.e. 40% of 14%) of the taxable amount. Moreover, since service tax is levied on the gross amount charged from customer, the service charge is also included for computation of tax. This invariably increases the taxable amount.
3. There was also this tax on sale of food items. With respect to restaurants, value added tax (VAT) is charged on the sale of food prepared at the restaurant. Since VAT is a state-specific tax, the applicable VAT rates for a particular item in one state may be different from another. Ideally, VAT should be charged on food items and beverages separately as per their respective prescribed rates. The VAT rates on food and beverages usually range between 5% and 20%, depending on the state you are feasting in. Most restaurants, however, club the price of food items and beverages and charge VAT at a flat rate on the single consolidated amount, which could be at a rate higher than that applicable separately on individual items.
4. After decoding the restaurant bill, here is how to figure out the invoicing done by home deliveries and takeaway joints. No service tax is applicable here as there is an absence of an element of services. However, it is noticed that most restaurants and eating joints charge service tax to customers against home delivery or takeaways, primarily to safeguard themselves from potential litigation or due to ignorance. Also, home delivery and takeaways should not charge service tax.
Anita Rastogi, partner, Indirect Tax, PwC; (With inputs from Somya Gupta, associate, Indirect Tax, PwC)