How is Service Tax and Service Charge calculated in Restaurants ?

A typical restaurant bill has the items which you have ordered and their prices. Then there is service charges, service tax and value added tax as well.

“Service charge is not the same as service tax. Service charge is the amount you pay for the service of the establishment and it goes into their pocket,” said Anil Rego, chartered accountant and CEO, Right Horizons, an investment advisory and wealth management firm.

The following example will illustrate the tax calculation.

Total for food items is: Rs 865

Service charge (5%): Rs 43

Sub total: Rs 908

Service tax is 12.36% of 40% of Rs 908.

40 percent of Rs 908 is Rs 363.20

12.36% of Rs 363.20 is Rs 44.89.

So the service tax to be charged is Rs 44.89.

Grand total (after rounding off) = (Sub total + Service tax) = (908 + 44.89) = Rs. 953

The most important thing to remember is that service tax is not charged on VAT. The restaurant might cheat you by charging you a service charge, even when it’s not mentioned in the menu. Or, they might cheat you by charging a service tax which includes VAT as well. Or they might collect a service tax but calling it service charge and cheat you as well as the government.

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11 Comments on “How is Service Tax and Service Charge calculated in Restaurants ?”

  1. pratik patel says:

    I OPEN A COFFEE SHOP plz tell me if service are liable on my coffee shop ? if yes plz tell me calculation of service tax ? tell in which service under a coffee shop are cover?

    • M M Mehta says:

      Yes VAT & Service Tax both are applicable in your case. However, you can save on them if few conditions are satisfied.

  2. Nirav says:

    dan how to calculate VAT under works contract? i mean ST element to be considered?

  3. C. DSouza says:

    Service tax should be charged on Service Charge and not 12.36% if 40% of non VAT total.
    Where in blazes did you get the 40% from???

  4. Veeshal V Suthar says:

    Hello, But the service tax for the restaurents is 3% as mention in the PIB, please browse the link below

    http://pib.nic.in/newsite/erelease.aspx?relid=70280

    Await Reply

  5. Ambarish says:

    Hi veeshal,
    Probably its of 28-February, 2011 13:23 IST

    • Veeshal V Suthar says:

      Hi Ambarish
      Yes I also of the same opinion
      But can help me with the latest up-to-date press release, I googled up but failed
      Await Reply
      Best Regards
      vs

  6. BIJESH MISHRA says:

    If your Coffee Shop is Air-conditioned , then only you can charge Service tax , otherwise not . This is as per Central govt rule .

  7. Amit Chordia says:

    On food bill 4.944% service tax is applicable (12.36% on 40% bill amount), but on Service Charge is 12.36% service tax applicable ?

  8. S ADHIKARI says:

    TOTAL AMOUNT 150000

    NOW HOW TO CALCULATE SERVICE TAX 12.36% AND VAT 14.5% BOTH IN SAME AMOUNT 150000?

    PLZ TELL ME ANY ONE


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