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Hotels, restaurants may have to pay tax on service charges

BS Web Team / New Delhi 14 Sep 17 | 12:59 PM

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Cracking its whip on hotels and restaurants still levying a service charge, the Consumer Affairs Ministry has asked the Central Board of Direct Taxes (CBDT) to consider service charge as income while assessing the tax returns. 

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Union Consumer Affairs Minister Ram Vilas Paswan said that while hotels and restaurants have complied with Centre’s guidelines, several consumers, through the National Consumer Helpline, are still complaining about high service charge.


In view of seriousness of issue, Deptt. of Consumer Affairs has written to CBDT to consider inclusion of Service Charge while assessing Tax.

— Ram Vilas Paswan (@irvpaswan) September 12, 2017

"Hotels/restaurants have been asked either to leave the column of service charge blank or mention on the bill that it is optional," Paswan told PTI. This means that the consumer can pay the service charge if he or she wants.

At present, some hotels and restaurants are charging a service charge in the range of 5-20 per cent, in lieu of tips, though guidelines to make the levy of such charge optional were issued in April 2017. These guidelines were sent to Federation of Hotel and Restaurant Association of India (FHRAI), National Restaurant Association of India (NRAI) and Hotel Association of India (HAI) also.

ALSO READ: 18% GST on takeaway food from non-AC area of AC restaurant

In this regard, state governments were asked to issue directions to hotels and restaurants to display the message at an appropriate place that service charge is completely optional and if the consumer is not satisfied with the services of that hotel or restaurant, he or she is free not to pay the service charge.

Jago Grahak Jago

Advertisements have also been released under 'Jago Grahak Jago' conveying the message among consumers that service charge is not mandatory but a tip, which is fully a discretion of the consumer. 

The ministry has directed legal metrology officers in all states to monitor the cases of charging more than the maximum retail price. Similarly, voluntary consumer organisations have also been asked to increase awareness and pick up some cases for exemplary remedial action. 

Here are GST rates if you are dining outside

Non-Ac restaurants: 12 per cent GST

Non-Ac restaurants serving alcohol: 18 per cent GST

AC restaurants: 18 per cent GST with or without alcohol

The GST on restaurants in five-star and luxury hotels has been reduced from 28 to 18 per cent, bringing it at par with standalone air-conditioned restaurants. The tax department has reiterated that no restaurant can charge GST at 28 per cent.

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