Restaurant Bills Explained – 2016 Version

Service Charge, Service Tax, Value Added Taxes – We bet they have got you all confused. Here is a layman’s guide for understanding & making sense of our Eating out bills.

Understanding F & B bills with vat, service taxes and charges.

Menu prices may seem very deceptive once you get the final bill in hand. Suddenly there is a barrage of taxes and charges staring in your face which you cannot make any sense of, however still are supposed to pay. Here is a guide that we have put together, which may help you in making any semblance of your eating out bills.

Difference between Tax and Charge

Charge is not fixed by anyone and outlets are free to write whatever percentage they deem fit on the menu. You can protest against it sure – if you do it before eating, it would be like haggling for the price of food and if you do it after eating it’s similar to you refusing to pay the bill if you are not satisfied with it. Service Charge is the most common charge applied in India and ranges from 5 – 15% of the total bill, 10% being the most common number in industry. Charge is something which is part of the revenue of the restaurant – what they do with it is their prerogative.

Tax on the other hand is regulated by government. The amount collected under heads mentioning Tax on the bill or invoice goes in government coffers and the money collected under Tax heads, is supposed to be deposited to the tax collector by businesses. The most common taxes you will see in your restaurant bills would be VAT (Value added Tax) and Service Tax. To make sure that you are not being cheated – you should look for the TIN & S.Tax numbers on the bill. TIN is a unique Tax Identification Number while S.Tax is the Service Tax registration number issued by government authorities to the businesses. Businesses are supposed to file returns with Tax Collectors, and deposit the amount of tax they collect to exchequer of India.

  • Understanding Service Charge – Service charge started as a practice to collect tips for the restaurant staff – establishments used the money as incentive for their staff and have different models of distribution among employees, ideally based on performance. This ensured that the benefit of tips extended beyond the customer facing service staff, which accounts for only 30-50% or total employees that a restaurant might have. Service charge ensured that rest of 50-70% of restaurant workers would also get a share from the ‘Tip’. That said, Service Charge remains a complex character in Indian Restaurant Industry – far-sighted restaurants are genuinely using it for welfare of the staff, while some are pocketing the entire amount – which in absence of any law or regulation is technically correct albeit ethically and morally questionable.And then there is a whole new issue of 10% Entertainment charge – which is  justified as the heavy cost of band or entertainment, which they are not able to meet due to cheap booze prices. Again as long as it is mentioned on the menu, they can add it to the bill. Again, as any other charge, you can protest and/or haggle for the same.
  • Value added tax or VAT is the most common tax you will see and as per current rates government taxes 20% on Alcoholic and non-alcoholic drinks,  While rate of taxation is 12.5% of rest of the food items. Hookah or Sheesha is also taxed under 20% head. Now this one gets complex – and would be best explained using our example of  – Hookah + Coke + Whiskey + Chicken Tikka + Dal Makhani + Naan + Gulab Jamun – for ease of calculation, lets assume that each of them are listed at Rs.100 on the menu.

    Hookah : 100
    Coke : 100
    Whiskey : 100
    Total : Rs.300
    Service Charge : Rs. 30 (10% of total)
    Restaurant Total for Drinks : Rs.330

    Government VAT on Drinks : Rs. 66 (20% of the Restaurant Total for Drinks)

    –Chicken Tikka : 100
    Dal Makhani : 100
    Naan : 100
    Gulab Jamun : 100
    Total : Rs. 400
    Service Charge : Rs. 40 (10% of total)
    Restaurant Total for Food : Rs 440

    Government VAT on Food : Rs. 55 (12.5% of the Restaurant Total for Food)

    So in this bill you will see value Added Tax or VAT being charged by Government under 2 heads, most probably like this :

    VAT @ 12.5% : Rs.55
    VAT @ 20% : Rs.66

    Thanks to meager real estate on the bill, along with software limitations – you only see VAT amount like this and can never understand how the figure was arrived at. In most cases we try to total the number of food we ordered and drinks we ordered and apply respective percentages – which obviously do not add up – because there is VAT charged on Service Charge as well, which makes the calculations very complex.
  • Service Tax, NOT Charge – but Tax – which again is charged by Government. Restaurants which have any part of their premises air-conditioned are are supposed to add this tax to their bills. This is double taxation on your bill and is required by Government. It is a complex calculation where the central service tax rate is taken and then restaurants are are supposed to charge 40% on that tax rate as Service Tax to their customers. So if the current service tax rate is 15% (check your phone bill for the same), then restaurant would be charging 40% of the same, which works out to 6% as Service Tax on our F & B Bills. So lets go back to our order of Hookah + Coke + Whiskey + Chicken Tikka + Dal Makhani + Naan + Gulab Jamun.

    Hookah : 100
    Coke : 100
    Whiskey : 100
    Chicken Tikka : 100
    Dal Makhani : 100
    Naan : 100
    Gulab Jamun : 100
    Total : Rs. 700
    Service Charge : Rs. 70 (10% of Total)
    Restaurant Total : Rs.770

    Service Tax : Rs. 46.42 (6% of Restaurant Total)

Now that we have calculated the figures of VAT on Drinks, VAT on Food, Service Tax, Service charge and Total F & B ordered, lets put this bill together.

Hookah : 100
Coke : 100
Whiskey : 100
Chicken Tikka : 100
Dal Makhani : 100
Naan : 100
Gulab Jamun : 100

Subtotal : Rs.700

Service Charge @ 10% : Rs.70
VAT @ 12.5% : Rs.55
VAT @ 20% : Rs.66
Service Tax @ 6% : Rs.46.42

Gross Total : Rs.937.42 – This is the amount you are supposed to pay.

Here is an illustration that would help you understand the structure better.

Restaurant Bill 2016

No wonder when people get the end bill, they can never make sense of it – and end up making issues with things that they do not understand – specially the Difference Between Taxes & Charges. Lot of us see two heads under Service and fail to understand the ‘Taxes’ & ‘Charges’ part while two types of VAT makes us completely freak out. But we have to understand that more than the establishment, we have our complex taxing structure to blame for the mess of a bill that we get.

But remember no restaurant can charge ‘Taxes’ without specifying their respective taxing account number on their respective invoice and if you have still feel cheated, then respective taxation departments can be approached with reference of the account numbers mentioned on the bill and see if they can help.

If you have any specific questions or confusions please ask in the comments.

Author: Shashank

CFE – Cheap Food Enthusiast Entrepreneur by birth, hippie by heart he is here just because he loves to eat. This adventurous biker is constantly looking for new avenues to satisfy his insatiable hunger for food & life. Though he loves sugar dense food, there is nothing sugar coated about him- brutally honest with his words, he often ruffles feathers with his stark naked opinions about food, fancy restaurants & orthodox ideas.

7 thoughts on “Restaurant Bills Explained – 2016 Version”

  1. @Angad – Service tax also includes service charge – it was an error on my part, which has already been fixed in the post.

    About the MRP thing – its complicated and I think few judgements are pending. Here we can have 2 cases :

    1. If the restaurant is serving Coke in glass – then there is no scope of argument – they can charge whatever amount and then have to pay VAT on that.
    2. In case of bottled water and hence other canned and bottled beverages the decisions seem to be pending in Supreme courts of India. Hotels & Restaurant claim that customer comes in to enjoy the ambiance and service of the place and not just to drink water, hence they are justified in charging over the MRP.

    It gets more complicated with types of restaurants – for eg. McDonald’s and Subways sell canned & bottled drinks on MRP, though it is an infalted MRP custom printed for their outlets.

  2. Avichal Pathik – CESS are added in Service Taxes. 14 % is the service tax and .5% are two cesses – Swachh bharat and Krishi kalya – making the total to 15% – the amount we see on our other service bills (like phone OR Electricity).

    However Service Tax is a central tax and center says that out of the total goods sold only 60% is the price of goods and remaining 40% is the cost of service. So service tax is charged at 40% of 15% – which works out to 6%. So to answer your question – yes cess are included in the bill, however not as a seperate line head, but part of the Service Tax number.

  3. Shashank Sir, I have read that Service Tax should be calculated on Service charge and not on the entire amount of the restaurant bill…isn’t it true?

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