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Post Info TOPIC: Service tax can be levied only on 40% of your total food bill


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Service tax can be levied only on 40% of your total food bill

 Oct 04 2015 : The Times of India (Chennai)
Service tax can be levied only on 40% of your total food bill
You've just had a nice meal at the trendy new restaurant that everyone's been talking about. The menu seems reasonably priced till the bill comes, and the figures are enough to give you indigestion. For, just taxes and the restaurant's service charge can constitute 30-40% of the food and liquor cost.

There have also been instances of restaurants computing taxes wrongly . Your bill will typically contain a service tax charge and state specific value-added taxes (VAT).Increasingly restaurants are also levying a service charge.TOI analysed a few bills to find out how much diners are forking out and why.

Who can charge servicetax?

Since 2013, all restau rants which have air-conditioning or central air heating (even if partial) are required to levy and collect service tax.

Caution point:

If a restaurant has both an AC and nonAC section, merely by sitting in the non-AC section, you cannot escape service tax.

Hot tip:

The Central Board of Excise & Customs has provided a leeway only where several restaurants are housed in a large complex. If a non-AC restaurant in such a complex is clearly demarcated and has separate branding and billing, then even if the food is served from a common kitchen, customers of this non-AC restaurant do not have to pay service tax. Remember this when you stop by at the nonAC coffee shop in a mall.

How is service tax calculated?

The restaurant bill comprises the meal cost plus services (such as waiter service, ambience by way of AC, live band et al). The cost of such services is built into the price of the meal. As it is difficult to segregate between meal costs and service costs, the government provides for a 60% abatement. Only 40% of your bill attracts service tax, which at the current rate of 14% works out to an effective rate of 5.6%. Hot tip: Remember ser vice tax cannot be charged on the full bill amount, it has to be charged on 40% of the bill.

TOI had earlier reported an interesting order of the district consumer court.Uma Parameshwari, who had dined at a Dhaba Express outlet in Anna Nagar, Chennai, in December 2012, found to her dismay that the restaurant had levied service tax on the full bill amount (without the abatement) ­ thus she had to pay `72 extra. She fought back and was awarded `12,000 by the consumer court.

Caution point: Service charges can add to the amount of service tax you will cough up. This is because service tax is calculated both on the total food and liquor charges plus the service charge.

VAT and why: Service tax is a central levy, whereas VAT is a state-specific tax on food and drinks, with each state specifying its own rate.The rates may also differ from item to item. In some states, VAT may be lower in a non-five star hotel. For instance, VAT rate on liquor served in a five-star hotel in Maharashtra is substantial ly higher. If you find the VAT component missing, don' dance on the table. “If a restau rant opts for the composition scheme they are not allowed to collect VAT separately. This is paid from their own pocket (or rather factored into the basic pricing of the meal). The rate under composition scheme al so varies from state to state; in Maharashtra it is 5%,“ ex plains Sunil Gabhawalla, a chartered accountant and an indirect tax expert.

Also, if the restaurant has levied a service charge, your VAT payout will increase, as VAT is computed on the mea or liquor cost plus the service charge.


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