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3 items that may inflate your restaurant bill by 20%

3 items that may inflate your restaurant bill by 20%

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It's a Friday evening and you're in a restaurant. You just had a nice, full course dinner. You even checked the prices prior to ordering. However, you were a little taken aback by the bill. The numbers did not match with those in your head till you came across a few items called service tax and service charge which inflated the bill by about 15 to 20 per cent. What really happened?

Since this was a Friday evening and you have been waiting for the evening for many days, you are in no mood to question but just pay it off. Many of us often feel that the added amount is high but don't question it.

Simple thing made complicated

We have an uncanny ability to deconstruct simple things and make them complex. Taxes and charges on seemingly simple things like food and drinks are areas where customers are taken for granted. Understanding a few of these terms is important.

Here's all you wanted to know about various charges/taxes associated with restaurant bills:

1. Service charge

This is charged by the restaurant for rendering its services to you. This money goes to the restaurant. The establishments are free to charge any amount as service charges as there are no guidelines provided by the tax authority on this. The charge varies from 5 to 10 per cent. Few restaurants don't charge it. This is equivalent to the tips people usually give to waiters. If you are charged service charge in the bill, don't pay tips as this charge is supposed to be shared among the staff.

Most of us don't bother even when we feel the charges levied are higher. One common reason for this is we don't think anything can be done about it. Secondly, you don't want to spoil an evening arguing with a manager.

However, the ground rule is that if the menu mentions service charges, you have to pay. If it doesn't, you can question it.

2. Service tax

Many people confuse service tax with service charges. Service tax is tax levied by the government on the services rendered by restaurants. Also, same service tax is applicable in all states. It is 12.36 per cent on 40 per cent of the bill, which includes your food, drink and the service charge. A restaurant must be air-conditioned for service tax.

The problem here is that most of the customers are taxed at the full bill and not on 40 per cent of the bill as directed.

To make things simple, service tax should be 4.94 per cent (12.36 per cent of 40 per cent) on your total bill. Hence, whenever you see service tax on the total bill clearly exceeding 5 per cent, you can question it.

3. VAT (value added tax)

There is another tax called value added tax - commonly known as VAT - that is state-specific. These rates can be as low as 5 per cent and as high as 20 per cent depending upon the state you are dining in. Moreover, VAT on food items is different from that on drinks. Many restaurants often club food items with drinks, and charge a flat rate on the total bill. In such cases, it is good to ask for separate bills for food and drinks. This should clearly show the different VAT for both the items.

Now, let's look at an example to understand all these more clearly:

Suppose you have dined in an AC restaurant and the price of food items is about Rs 900. You will be asked to pay service charges, which goes to the restaurant, VAT and service tax, which goes to government.

Items Amount
Total bill of food items 900
Service charge (assuming 6 per cent) 54
Sub-total 954
Service charge to be levied on (40 per cent of sub-total) 380.60
Service tax (at the rate of 12.36 per cent) 47.17
VAT @ 12.5 of sub-total 119.25
Total amount to be paid 1120.42

Many a time, restaurants charge the highest rate on the total bill. You can find out about it if you understand these terms.

Conclusion

Most of the times, we cannot do anything about restaurants overcharging. The reason for this is not only our unwillingness but also ignorance of restaurant managers. In many cases, though, you can question these items and get your bill corrected. Please remember that this will not be easy. However, you can always question and explain this to the restaurant manager and get your bill corrected. There have been cases where customers were able to get their bills reduced.

Disclaimer: BankBazaar.com is an online loan marketplace. All information in this article has been provided by BankBazaar.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Story first published on: August 15, 2013 14:15 (IST)

Tags: Services tax, Service charges, Value added tax, VAT, Restaurant

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