Foodie — Lets Understand Your Restaurant Bill…


We usually go out with friends/Families/Office mates for Lunch/Dinner.
After having a great Lunch or OK Dinner…we usually have to pay a hefty bill to restaurant..

Terms such as “service tax”, “VAT” and “service charge” thrown at you.
However, instead of asking the restaurant authorities about these terms and their
application, have you simply paid up to avoid any potentially embarrassing social encounter.

Lets Understand few components of your Bill.


VAT is a value added tax which is imposed separately by each state. In the restaurant business.
the VAT rate has mostly been fixed at 12.5%. Most states have a separate VAT Act and VAT Rules
which govern the functioning of this tax. This seems simple enough but a combination of VAT with
service tax will make you confused as to their application and approach.

Service Tax

Restaurants, until May, 2011, did not come under the purview of a “taxable service” under Section 65(105)
of the Service Tax Act. However, restaurants meeting both the following two criteria, will be required
to pay service tax @ ~ 12.03%:

air conditioning AND a liquor licence.

If either of these criteria are not met, a restaurant cannot charge service tax.
Of course, the restaurant passes on the service tax burden to the customers.
However, the Finance Ministry also realizes that this service tax cannot be charged
on the whole amount of the cheque. Since the tax being imposed is a service tax it is
to be imposed only on the service component of the amount. Thus, for this purpose the
Finance Ministry has declared that the service tax is to be charged on 30% of the invoice
amount (excluding the VAT charges). Therefore, the effective service tax becomes 3.09%
of your invoice.


Service Charge” i.e forced tip

Now, let us proceed to the more dubious question of “service charges”. These charges work
like a mandatory tip. Restaurants normally apply these to ensure that their working staffs
have enough incentive (or just to extract more from you).


The legal position regarding the validity of this practice is not clear. However,
one viewpoint is that it is illegal. Legally, if eating at a restaurant is understood
in contractual terms, the terms and conditions are present in the menu card, and most
restaurants clearly mention the imposition of an extra service charge in its menu card.
So, they can technically argue that you agreed to pay for it. However, if there is no such
mention of a service charge in the menu or in the restaurant, you can legally refuse to pay
that amount. Service charge, unlike the VAT or Service Tax, is not your duty to the government,
but a restaurant policy. However, if the imposition of Service charge is clearly communicated
by the restaurant, via its menu or otherwise, then the restaurants are entitled to include this
amount when calculating your sub-total for service tax purposes.

If you received terrible service, it is always a good idea to try to get it removed.
Some restaurants will oblige; some won’t. But worth trying.

One more interesting thing – You can always ask for “FREE CLEAN WATER For Drinking” , This is your right as a Consumer in any restaurant.

Your feedback/Suggestions are welcome



  1. I was going through the same problem few months back , then I consulted credit sudhaar , they helped me in paying my debt and also counselled me in taking decisions to improve my credit score. I would suggest you to consult them once. You can contact them on 022-67886788 or can visit their websites at


Please enter your comment!
Please enter your name here