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

By | December 22, 2015

Service Charges

You decided to tip the waiter generously for bringing the Spaghetti Bolognese right on time. Then you see the bill and you are baffled – it is more than what you were prepared for. The culprit? Service taxes, service charges and VAT. Now you are in a fix. You don’t know if you should even tip the waiter, forget about tipping generously! We have all faced situations like this. More often than not, we end up tipping because we are obligated to do so and also because we don’t want to feel guilty. That’s the right thing to do, isn’t it? Wrong!

Let’s decode the restaurant bill and find out exactly why you are paying extra and why you don’t have to feel guilty about not tipping for lavish meals anymore.

  1. Service tax

You see this on your bill only when you dine at certain restaurants. Do you know why that is? Service tax is levied by the government and it applies to only air-conditioned restaurants. So if you are dining at a non-air conditioned restaurant, you don’t have to worry about the service tax. Service tax is charged at 12.36% and is levied only on 40% of the bill. So you can expect service tax of 4.94% (12.36% tax on 40% of the bill) on the total bill. Service tax is calculated on the subtotal and the service charge of the bill.

  1. Service charges

Service charges are the very reason you don’t have to feel guilty about not tipping! Service charges are levied by the restaurant for the services that they offer to you. The restaurant decides how much to charge you and you get no say in it. The restaurant can charge anywhere between 5% to 10% as service charges. Service charges are like a compulsory tip that you have to pay regardless of whether you enjoyed the service or not. Service charges are shared by the waiter and the rest of the staff.

  1. VAT

This is one word that you are familiar with and dread too. VAT or Value added tax is the tax levied on any item that is sold. Restaurants can levy VAT only on the items that they prepare, VAT can’t be levied on packaged water, soft drinks and packaged food served at the restaurant. VAT is paid to the state government and the VAT levied on the bill varies from state to state. VAT is charged on the subtotal and the service charges. All of it goes to the state government and the restaurant does not have any share in it.

  1. Swachh Bharat Cess

The Swachh Bharat Cess is the final element that you are going to see on your restaurant bill. This brand new tax will help you do your bit for the clean India initiative whether you like it or not.  It will involve a 0.5% cess on all services liable for service tax. The Swachh Bharath Cess will effectively raise the  Service Tax rate to 14.5%,

So now you know all about the weird terminologies on your bill. So the question now is when is it okay not to tip? You don’t have to worry about tipping when there are service charges levied on the bill. Service charges are the tips that you would have paid the staff otherwise. There is nothing wrong with tipping even when service charges are levied on the bill. If you enjoyed the service and are feeling a little too generous, you can always leave a tip behind to show your appreciation.

Additional Reading: Charges and taxes in restaurants

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