Some restaurants/hotels/eateries besides charging for the food and beverages are also charging ‘service charges’ in their bills. The proceeds of the ‘service charges’ are retained by the restaurants/hotels/eateries. Consumers have a misapprehension that service charges are being collected by the restaurant on behalf of the government as a tax. Service charges collected by the restaurants/hotels/eateries are retained by the restaurants/hotels/eateries and are not service tax imposed by the government. Effective service tax in relation to serving of food or beverage by a restaurant, eating joint or mess having the facility of air–conditioning or central air-heating in any part of the establishment is 5.6 % (14% of 40%) of the total amount charged.
Service Tax clarified
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