Charges And Taxes In Restaurants

Restaurants these days charge you a bunch of taxes at the end of your meal. Read on to know more about what they mean.

Eating out has become a fairly expensive affair these days. Gone are the days where you could simply walk into a restaurant, order the bare minimum and pay for only what you ate. If you take a look at the bill at the end of your meal in this day and age, chances are you’ll be confused and surprised at all the charges and taxes staring up at you.

Picture this! It’s Friday evening and you head to a nice restaurant with your Credit Card in tow. You have a full course meal followed by dessert. In fact, you checked the prices before you ordered, but you’re a little taken aback when the bill arrives.

You notice the service tax and service charge has inflated the bill by about 15% to 20%. Since you’ve been waiting for this evening for the entire week, you don’t dwell on these charges and pay the bill.

Additional Reading: Proposed Fat Tax To Make Junk Food Expensive

We’ve all probably faced this situation at fine dining and not-so-fine dining restaurants! Almost all of us agree that the extra cost is high, but most of us are quite clueless about the charges and taxes included in the bill.

However, it is certainly important to know what we’re paying for. To help you figure out these taxes charged by restaurants, we have summarised the different types of charges that you might come across in your restaurant bill.

Service Charge

This is charged by the restaurant for the services rendered to you. Establishments are free to charge any amount as service charge since there are no guidelines provided by the tax authority.

The charge usually varies from 5% to 10%, although some restaurants prefer not to levy this charge. In essence, it is equivalent to the tips people usually give to waiters. If you are charged a service charge on your bill, you are not obliged to pay tips as this charge is supposed to be shared among the staff.

Most of us don’t really enquire about it, even when we feel the charges are on the higher side. This is because we tend to think we can’t do anything about it. Secondly, we don’t want to spoil our evening by arguing with the restaurant manager.

However, the ground rule is that if the menu mentions a service charge, then you have to pay. If it doesn’t, you can certainly question it.

Additional Reading: Card Payments Now Surcharge And Service Charge Free

Service Tax

Many people confuse service tax with service charges. Service tax is the tax levied by the government on the services rendered by restaurants. Service tax is the same in all states. It is 12.36% on 40% of the bill. The bill includes your food, drink and the service charge. The restaurant must be air-conditioned for service tax. The problem here is that most customers are taxed on the full bill and not on 40% of the bill as directed.

To make things simple, service tax should be 40% * 12.36% =4.94% on the total bill. Hence, whenever you see service tax on the total bill exceeding about 5%, you can question it.

Additional Reading: Don’t Feel Guilty About Not Tipping! Service Taxes And More

VAT (Value Added Tax)

There is another tax called VAT (Value Added Tax) that is state specific. The rates can be as low as 5% and as high as 20%, depending on the states themselves. Moreover, VAT for food items and drinks are different.

Many restaurants might club food items and drinks and charge a flat rate on the total bill. In such cases, it is good to ask for separate bills for food and drinks. This should clearly show different VAT for both items.

However, all these charges were relevant before GST was introduced. GST has replaced Service Tax and VAT.

Additional Reading: How GST Will Affect Your Restaurant Bill

Now, let’s take a look at how the Goods and Service Tax will affect your restaurant bill.

GST (Goods And Service Tax)

The latest tax implemented by the government sure sent the public into a frenzy. GST will affect your restaurant bill depending on whether the restaurant is air-conditioned or not, or whether you are buying alcoholic beverages or not.

The GST rate for air-conditioned restaurants is 18% and non-air conditioned places 12%. The break-up of this tax is as follows:

Central GST or CGST =6%

State GST or SGST =6%

The 18% GST charged in AC restaurants is irrespective of whether they serve alcohol or not. Remember that no GST is charged on alcohol. However, liquor attracts VAT as imposed by the respective state.

Therefore if you were to order liquor alongside your meal at a restaurant, then your bill will reflect charges for alcoholic beverages + food + VAT+ GST.

Additional Reading: GST: Expensive Or Cheap?

Now that you’re aware of all the charges and taxes that appear on your restaurant bill, you should consider getting a Credit Card. With a Credit Card, you can save a lot while eating out. We have a bunch of cards that offer huge discounts on dining and high rewards on dining spends. Care to check?