What Is The Difference Between Service Tax and Service Charge?

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Confused about your restaurant bill? It may so happen that, you calculate and order the food and when the bill arrives the amount will be much higher than what you have calculated.

Most of the individuals love to visit restaurants for reason or without reason and end up paying a higher amount as they will be less aware on the calculation part.

So many restaurant owners take advantage and misguide the unaware customers.

Recently, the government clarified that these 'service charges' collected by the restaurants, hotels are retained by the restaurants and are not 'service tax' imposed by the Government. 

What Is The Difference Between Service Tax and Service Charge?

Here is a simple explanation on difference between service tax and service charge

Service tax

Service Tax is a type of tax that you pay to the government on services rendered. This form of tax has become an important source of revenues to the government.

This could be services rendered at a hotel or simply in your telephone bill.

From June 1, 2015, the rate of Service Tax will be charged at 14 per cent, the effective rate of tax will be 5.6 per cent of the total amount charged.

The point to note is that the service tax is that which is charged on 40% of the total bill. Means that if your bill is Rs 1000, service tax should be charged on Rs 400 that is (40% of 1000 is Rs 400).

So, restaurants charge service tax on the entire amount, thus reducing the amount which will be 5.6% of the bill.

Restaurants, eating-joints or messes which do not have the facility of air-conditioning or central air-heating are exempt from service tax.

Service Charge

Service charges are levied by the restaurant owners and amount will go into their pocket.

Restaurants can charge for service rendered like serving the food at the table, cleaning the table etc,.

As there is no standard guidelines for service charge, the restaurant owners charge the amount as per their discretion. The charges can vary between 5- 20 per cent depending on the service and the restaurant management.

Remember that every restaurant must have the TIN number and Service Tax Number on the receipt, if they are charging it.


Read more about: excise, service tax, service charge, tax
Story first published: Tuesday, July 28, 2015, 10:11 [IST]
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