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Gear up to pay higher Service Tax in AC restaurants

Even for simple meal, we were already paying a 3-course-tax bill (that includes service tax, service charge and VAT).  And to add to this, the finance ministry has further escalated the service tax rate from 4.94 per cent to 5.6 per cent, for all the air conditioned eating joints.

The increased incidence follows government raising service tax rate from 12.36 per cent to 14 per cent with effect from June 1st, 2015. Air conditioned hotels and restaurants attract a service tax on 40 per cent of the billed amount. At old service tax rate, the effective rate of taxation came to 4.94 per cent of the food bill and at the higher rate of 14 per cent it comes to 5.6 per cent.

However, the food/beverage bills in non air conditioned hotels and restaurants are exempt from service tax.

Here is a brief synopsis of elements that inflate your restaurant bills:

  • Service Charge: It is not a tax and is not levied by the government but purely charged by the restaurants. They are free to charge any amount as there are no guidelines, but it usually varies from 4 to 10 percent. It is corresponding to the tip which you would typically give waiters for a good service, so there is no need to pay a separate tip.
  • Service Tax: It is a tax levied by the government. Make sure that the restaurant does not charge you more than 5.6% (of the total bill) as service tax and that it is an AC restaurant.
  • VAT (Value Added Tax): VAT is only applicable on food items that are prepared in the restaurant as they add value before serving it to you. So make sure that you are not charged VAT on packaged food items or water bottles.

So the next time you visit a restaurant, your heavy-bill will make more sense to you!

Source: Financial Express