What is the Difference Between Service Tax and Service Charge?

The recent statement by the government on service charge being discretionary for the diner, has sparked a lot of interest. However, it is important to understand the difference between service charge and service tax.

Anantika kapoor  |  Updated: January 03, 2017 16:51 IST

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What is the Difference Between Service Tax and Service Charge?
Highlights
  • The extra cost in your bill includes taxes and service charge
  • The government announced that its not mandatory to pay the charge
  • Service tax is very different from service charge
When you eat out at restaurants in town, both fine dining and mid-range, do you ever pay much attention to the constitution of the bill? For a meal where you may have ordered dishes worth Rs.1000, you may often end up paying around Rs.1400-1500. The extras include taxes and service charge.

The recent statement by the government on service charge being discretionary for the diner, has sparked a lot of interest. However, it is important to understand the difference between service charge and service tax.
 
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Service Charge:

In recent years, customers have had to pay 7-20 percent of their bill value as service charge, irrespective of the services they received. This amount is a sort of ‘forced tip’ that the diner must pay, which is supposed to be divided amongst the staff of the restaurant. It keeps them motivated and pushes them towards greater service standards. However, The Department of Consumer Affairs has rung in the New Year with a statement that empowers customers to ask for the service charge to be waived off if the services offered are not up to the standard expected. 
Service Tax:


The government levies several taxes, one of which is the service tax. It is the tax levied on the service provider but eventually is borne by the customers utilizing that particular service. This is a mandatory inclusion in your bill. However, takeaway outlets have the flexibility to include this tax into their menu pricing so what you see is what you pay. You may have mistakenly believed that service charge is also a government levied mandatory charge. However, it is essential to note that the government does not impose a service charge in restaurants and it is charged by the restaurants themselves, for services rendered. The amount they charge varies, depending upon the establishment.


Differences between service tax and service charge:

 1)      The service tax is a government levied tax and is fixed in every state of India, at 14 percent. On the other hand, service charge is an extra cost charged by the restaurant, which varies. It is a means to cover ‘tip’ cost, as a lot of customers in India may not tip.

 2)      The service tax conforms to certain guidelines laid down by the government. Unlike this, the service charge is not bound by any guidelines from the government.

 3)      Officially, only a restaurant which is centrally air-conditioned/heated is eligible to levy a service tax on the customers.  However, some restaurants may be seen practicing this even if they do not come under this category.

 4)      The service tax is recovered by the government. On the other hand, the service charge goes directly to the restaurant.

Comments 5)      While the service tax is the same throughout the country, service charge varies from restaurant to restaurant.
 
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 It is important to understand the difference between the two. With this knowledge, you will be able to decode your restaurant bills with ease.

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