Different taxes paid while dining in a restaurant

Different taxes paid while dining in a restaurant

Most cities have several restaurants and eateries. The tax structure in most places determines the price of food there. Customers often do not have an idea as to what tax is legitimate and what is not. This article would help you understand the different tax structures prevalent in restaurants and prevent you from paying more than what is required.

Tax Structures

Often people pay more than the actual cost of a single meal in a restaurant. It is the tax structure that confuses them.

Service Tax: Many restaurants would charge you a service tax for the services offered. Generally, the service tax is 12.5% of the amount charged for unpackaged food and beverages. If you buy packed food (manufactured by someone other than the restaurant owner), you should not be paying service tax, because the due taxes should have already been paid by the restaurant while purchasing it from the vendor.

The good news is, according to a recent Supreme Court ruling, no restaurant in India should charge you a service tax for serving food. You cannot be charged a service tax for sending food to your room while staying in a hotel either. However, this still needs to come into effect.  

VAT: The bill often comes with Value Added Tax or VAT of 14.5% on the entire bill amount, which is illegal. The 14.5% VAT can only be charged on the bill amount for items which include those prepared by the restaurant itself. No VAT should be charged on items like packaged drinking water, soft drinks and other packed food items. The current service tax slab is 12.36% (12% is service tax + 3% {of 12%}) is educational charge.

VAT on Food and Beverage: On food and non intoxicating beverages, the VAT  applicable is 12.5% and on liquor (alcoholic beverages) it is flat 20%, irrespective of the alcohol substance in the drink.

Service Charge: You are not bound to pay tips for any services you avail from the restaurant. You could pay a small tip if you are satisfied with the services but that is discretionary. Generally, 10% of the total bill amount is considered a tip and is charged in the form of a Service Charge.

Make sure that you check the bill thoroughly before settling it as you may be overcharged or billed for something you have not ordered. If you have any doubts get it cleared right away. You can challenge the bill if you are not satisfied.

Posted in: