Are restaurants really overcharging or is it mere farce?

A very interesting mail is doing rounds for some weeks and a discussion point everywhere I go nowadays  Even similar kind of post is finding its way through Facebook account of mine along with many of my friends (without any gender discrimination whatsoever…….lol !).Restaurants overcharging bills

This is the e-mail or Facebook post and all of you read it carefully too before going further.

We had been to several restaurants recently. I observed that “service tax” has been misused and charged to the customers like you and me.

Let me give an example:

Food and Beverage = Rs. 1000.00
Service Charges @ 10% = Rs. 100.00 (10% on the Food and beverage amount)
Service Tax @ 4.94% = Rs. 54.34 (4.94% on F&B + Service Charges)
VAT @14.5% = Rs. 145.00
Total = Rs. 1299.34

As per the definition – “Service Tax can be charged only for the services provided to the customer”.

Now, see what is happening here in the above said example.

Service Tax should be charged only on the Service Charges amount i.eRs.100 and not on the entire amount (1000+100).

In this example, the customer should be charged only Rs 4.94, whereas he has been charged Rs. 49.00 extra.

Where does this money go? Only the restaurant owner and the chartered accountants who work for them know.

So, I have started asking them the questions – and surprised to see the reactions from the famous restaurants. Either they say, “Sir we cannot change the format of the bill – so, we will recalculate and tell you the revised amount. You may pay only that.

Sir, you do not need to pay the Service Tax amount itself.”

I now have 3 to 4 restaurant bills, for which I have paid only the service tax – on the service charges and not on the total amount.

Every bill must carry the TIN number and Service Tax Number, if they charge it. So, I ask for the Service tax number if it is not available in the receipt that they provide.

We cannot go to any government official and ask them to get this right – because of our system.

Please remember – we cannot change any political leader – but we can change ourselves. If we change ourselves – things will change.

Please do share this with every one of your friends and known people.

Ask for the right tax calculation and pay only the tax, which is supposed to be paid. Verify every bills and receipts that you make payment on.

Isn’t it an eye opener or mere half truth?

Let’s discuss all about it in the post.However,I would recommend you all to go through this worthy post at Taxindiaonline before coming back to me in order to make the matter more clear and transparent.

If you have gone through the post as advised by me half of your doubts must have been done away with. In case, you are still searching for some answers we can have more clarity on the issue.

Very few among us are well aware about the complexity of our tax structure (in any form) in our country. And when such mails are widely circulated we tend to get bit intrigued by the mystery.

Restaurants charge service tax for providing service such as serving food and drinks and service tax is applicable on this service.

The only point missed by the post on Taxindiaonline while contesting the point of the circulated mail was that hotels and restaurants charge service tax (12.36 %) on complete food bill along with service charge which is not correct and should only levy on service charge. The circulated mail is right in this context.

However, the circulated mail is wrong in providing all the other facts and should recheck their calculation.

The point could be made all the more clear as per one of the articles in Business standards where it says that ……..Given that many don’t know the rates and its applicability, it’s difficult to question the restaurant owner. There are only two main tax components to a food bill – service tax and value-added tax (VAT). Even if service tax can be levied on the entire bill, restaurants get abatement on it. Assume there is 60 per cent abatement; only 40 per cent of the bill should attract service tax. This might not always be the case because most diners do not know about abatement or at least would not know the abatement rate on the relevant restaurant category. Some might choose to apply 4.9 per cent as service tax (12.36 per cent of 40 per cent of the bill) on “complete amount” (food and beverages + service) mind you as per Rule 2C of the Service Tax (Determination of Value) Rules, 2006.

It is here that Taxindiaonline is more than correct and proves the argument against the circulated mail completely without any doubt.

Therefore, some mails or posts on Facebook are only for refreshing purpose after long day’s work and should not be taken too seriously. I hope you aren’t…….am I correct?

Ashish Pandey

I am a business journalist who is currently employed at Zee Business. My areas of interest include business and foreign policy. You can reach me on Twitter at @ashuvirgo1984 or @eFundsPlus.

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