Sign In     Follow Us :
Market Snapshot
Trading Calls
Company Analyst Recommendations
JETAIRWAYS Karvy SHORT
HAVELLS Karvy LONG
OIL Karvy LONG
AMARAJABAT Karvy SHORT
TORNTPHARM Karvy SHORT
Click Here for More Research Calls
The Chartist
[imgleftbottom] The year has begun on a mixed note for real estate. What is the participants’ mood like? An anonymous online survey by JLL.
Beta and Standard Deviation, the Two Ways to Measure Risk We all come across financial issues that sound Greek. Worry not. We are here to guide you through the maze…
Subscribe
Finapolis Finance Journals
The Finapolis Poll
Are steps being taken by the government on the black money issue enough?
Please answer this simple math question 4+3 =
Indirect Tax
Decoding Taxes On Your Restaurant Bill
Check restaurant bills always. If your favourite fine dining place charges you VAT on packaged mineral water, slam it
By Rahul Kumar Dubey      | Dec 08, 2015
Jump to comments (0)

Weekends are time to unwind and we seem to be in the same mode when we are out with family and friends at a fine dining restaurant. However, this is exactly where you could be short changed. Sometimes, ripped off too! 

When Delhi-based Sujay Gupta recently went out for dinner with his wife, his bill had several charges and taxes, in addition to the cost of the food and drinks. There was a value-added tax (VAT) on food at 12.5% and on beverages at 20%, a service charge of 12% and a service tax of 5.6%. Thus the actual bill amount of Rs 1,494 had gone up to Rs 2,020 after these charges and deductions. He did not like the bill, but nevertheless paid as he was not sure of how these bills are computed.

A restaurant bill has two tax components: VAT and service tax, which are as per regulations. These correspond to the goods given by the restaurant to you (food and beverages) and the services provided (ambience, waiter service, music, comfortable seating, etc) respectively. The ratio of goods to service is presumed to be 60% Vs 40%. The service tax of 14% is to be divided accordingly between VAT and service tax. There may also be a component called service charge which is roughly a tip that you would give to the waiter and is not a governed by any regulations. 

Value Added Tax: VAT is charged for the food prepared and sold by the restaurant. It varies from state to state and can be between 4% and 12%, depending on the state. VAT does not apply for packaged items like bottled water and you need not pay for it since the MRP already has VAT component built in.

Service Tax: Service tax is charged at 14%. As already explained, services are supposed to account for 40% of the bill. Hence, service tax will be 14% X 40% = 5.6% on the bill amount. Mind it, this tax can only be charged if the restaurant is air conditioned, even though partially.

Service Charge: Generally service charge is mentioned on the menu card itself. Mostly, you do not have much say in this but if the service has been particularly bad, you may object to it. The bill paid recently by Sujay Gupta is shown in the table as what was paid and what should have been paid.

If you carefully see, service tax has been taken on the complete bill amount as also the service charge. VAT calculations are wrong. Had Sujay known, he could have pulled up the restaurant management. Additionally, it is not even known as to how much of the tax will actually be paid by the restaurant to the government.

Where do Restaurants Overcharge: The above simple example would make it very clear to you what all additional can be sneaked out by a restaurant from your pocket without you knowing it. In general, restaurants overcharge by: 

- Counting service tax on service charge.

- Taking 14% service tax on the entire bill amount while also taking the VAT separately.

- Taking same (higher) rate on VAT for food as also beverages even though regulations may have different rates laid down for the two.

- Lastly, but very importantly, doing wrong calculations of the rates and maybe even the total may be wrong.

Swachh Bharat Tax: Since 15 November 2015, an additional Swachh Bharat Tax of 0.5% can be levied on all services where a service tax is to be levied. Thus effectively, you may take the service tax as 14.5%. This means that in a restaurant, the total Service + Swachh Bharat tax will be 14.5% X 40% = 5.8% of the total bill amount less packaged goods. 


The author is an investment planner with Hum Fauji Initiatives

TAGS:
Comments
[imgrighttop]
Columnists
Adhil Shetty
Choosing Between Equities and a Bank FD
Naveen Kukreja
Is it Wise to Increase Credit Limit on Your Credit Card?
AN Shanbhag and Sandeep Shanbhag
Some Tips and Tricks for Saving Tax
Manish Kumar
Key Tier-II Cities Evolve Into Senior Living Hubs
More Columnists [ + ]
Get all your personal finance queries answered by the expert
[+ more]
The Finapolis Conversation
‘Valuations are comfortable even with a slower recovery and lower earnings’ says Sohini Andani, Fund Manager, SBI Fund Management
[+ more]
Consolidate Mutual Fund Portfolio and Align Existing Investments with Goals - Financial Plan of Shivanand Pandit
[+ more]

Copyright © 2016. All rights reserved. theFinapolis.com Cancellation Policy | Service Delivery | Refund Policy | Privacy Policy | Careers | Contact Us | Sitemap