Service Charge, VAT, Service Tax on restaurant bill – Everything you need to know

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Did many of those Facebook posts about restaurants bill confuse you? Worry not, I will answer all your questions about Service charge, VAT and Service Tax on restaurant bill.

1. What are the various components of a restaurant bill?
Charges for Food and Beverages, Service Charge, VAT and Service Tax.

2. Who charges VAT and the Service Tax?
VAT is levied by your state government and Service Tax is levied by Central Government. In case of service tax, only AC restaurants can charge it.

3. Do I have to pay Service Tax only on the Service Charge?
No, you have to pay service tax on the 40% for your food and beverages bill i.e. 5.6% of your food and beverages bill. It’s worth noticing that not all the restaurants charge the service charge.

4. I have seen restaurants charging VAT twice and at different rates?
VAT is a state subject and it varies from one state to the another. However, usually, in case of restaurants, the alcohol has a higher rate of VAT. So, you will see lower rate of VAT being charged for Food and beverages other than alcohol and a higher rate of VAT on the beverages and food items containing alcohol.

5. Can the restaurant charge service Tax on Food or beverages sold at MRP?
No, it can’t. If goods are sold on MRP basis (fixed under the Legal Metrology Act) they have to be excluded from total amount for the determination of value of service portion. (Circular No.173/8/2013 – ST)

6. How is Service Charge calculated?
Service Charge is calculated on a fix percentage basis on your food and beverages bill. Service charge is a kind of mandatory tip.

7. How is VAT calculated?
VAT is charged at a fix percentage on your food and beverages including service charge. As I mentioned above that VAT is state subject and this might vary from state to state.

8. How is Service Tax calculated?
Currently, Service Tax is calculated at 5.6% of your food and beverages bill including service charge. VAT is excluded from this calculation.

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