In the Union Budget, there was a proposal to levy a Krishi Kalyan Cess of 0.5% on taxable services. That cess is now a reality and has kicked in from 01-Jun-16, making your banking and stock market transactions, phone bills, watching movies, eating out, and many other activities that bit more expensive. Here’s a ready reckoner to help you understand your restaurant bill and ensure you’re not overcharged.
While most service providers are straightforward about the levy of service tax and cess, there is often some confusion and ambiguity about how it is charged by restaurants, along with Service Charge and VAT (Value Added Tax). Here’s an infographic to simplify this.
– is not a Government levy
– is in lieu of a tip and shared among the staff
– varies between 5-10%, should be mentioned in the menu
– should not be charged on delivery / takeaway orders
– is a Central Government tax applicable to AC restaurants
– is levied at 6% (15% on 40% of the bill value, including Swachh Bharat Cess and Krishi Kalyan Cess)*
– is also applicable on delivery / takeaway orders
– can be included in the price of the food, so doesn’t appear separately in the bill
* Some restaurants show a detailed break-up of Service Tax (5.6%), Swachh Bharat Cess (0.2%) and Krishi Kalyan Cess (0.2%)
VAT (Value Added Tax)
– is a State Government levy
– is charged on food prepared and sold by the restaurant
– rate varies from 5 – 25% depending on the State you’re dining in
– rate differs for food and alcohol, and is charged on total of items and service charge
Are restaurants overcharging you?
The last thing anyone wants to do after an enjoyable meal is fire up their calculator app, but it is always useful to know how restaurants sometimes overcharge you by oversight or an error in their billing system;
Incorrect Service Tax calculation
– Service Tax is chargeable on 40% of the bill amount
– At times, restaurants levy Service Tax on the total bill, which is wrong
Incorrect VAT calculation
– VAT is chargeable only on food items prepared by the restaurant *
– Levying VAT on packaged foods or bottled water is wrong
* Some restaurants may not show VAT on the bill if they have joined the composition scheme (PDF) under which they charge a lower VAT rate and are exempted from keeping detailed records
Service Tax and Service Charge on home delivery / takeaway
Ideally, Service Charge (tip) should not be levied on home delivery or takeaway orders.
Last year, there was some confusion when in a letter to a restaurant, the Deputy Commissioner of Central Excise and Service Tax in Chandigarh said that the dominant nature of the transaction was ‘sale’ and not service, hence service tax wasn’t applicable on home delivery or takeaway if no amount was charged for delivery of food. This letter was subsequently withdrawn the next month, so in the absence of any official circular on this issue and to avoid litigation/penalties later, restaurants are levying Service Tax.
Hope you found this guide to understanding your restaurant bill useful.
Now, track all your spends including food and drinks without any user input. Split and settle expenses with your friends over chat, export your data, get reminders for pending bill payments – all this is auto-magically possible with Walnut.