Finally, we end up paying whopping 20 % extra !

Know how your Restaurant Bill is Cooked !

  • Bachelor !?
  • Too tired to cook !!?
  • Want to celebrate with your family or friends !!!?

We don’t need reasons to visit a restaurant and satisfy our food cravings. Eating out has become more of a weekly / fortnightly ritual for families. Weekends are supposedly “no-cooking” days in most of the households. The joy of visiting your favorite food joints to satisfy your hunger pangs swiftly turns into a nightmare the moment you receive your bill!

Decoding the bill and its components proves to be a headache and often people grudgingly end up paying the amount charged as per the bill – along with a generous tip (though unwillingly many a times).

Before decoding the billing system, let’s try to understand the working of a restaurant. Employees in a restaurant, broadly speaking can be classified into two types – the customer facing ones (bearers, parking attendants, floor managers etc) and the invisible ones (cooks, janitors, cashiers etc). Every one of them is an integral part of the service provided in a restaurant! The irony is that only the bearers or the parking attendants tend to get tipped by a customer!

Service Charge

Many restaurants tend to add service charge to the bill. This varies between 4% to 20% (depending on the policies of the restaurants). Service charge is different from service tax! Ideally, restaurants charge it from the diners and split the money among employees. This is purely a restaurant’s internal policy and there exist no guidelines for the same. The restaurants have to mention the service charge explicitly on the menu. In case of service charge being levied, one need not tip the waiters again.

Service Tax

Restaurants, food joints come under the services sector. Apart from the food, they provide ambience, air-conditioning, central heating etc. Restaurants which do not provide these facilities are not eligible to impose service tax. Service Tax is charged on 40% of the food bill plus service charge amount (if any), at a rate of 14 % . This tax has to be passed on to the Central Government by the restaurants.

Value Added Tax

Value Added Tax or VAT is levied on the food items provided in a restaurant and varies from state to state (5% to 20%). VAT is calculated on food bill plus service charge amount (if any).

Let’s try to simplify the above billings with an example:

Sub Total 1200
Service Charge 120
VAT (3%) 39.6
Service Tax (5.6 %) 73.92
Adding them,  
Total Amount 1433.52
Round Amount 1434

Suppose the food bill for a family works out to Rs 1200. The restaurant charges a 10% (Rs 120) service charge on the food bill. The food bill and the service charge add up to Rs 1320.

VAT (as decide by state governments) will be calculated on the total of food bill and service charge. A 3% VAT here will amount to 3% of Rs 1320 (Rs 39.6)

Service Tax of 14% will be calculated on 40% of the food bill plus the service charge.

So, [14 % (40%) (1320)] = 5.6 % (1320) = Rs 73.92

The total bill comes out to Rs 1433.52. Again the restaurant cheekily rounds off the final amount to Rs 1434!!!

Thus, for food consumption of Rs 1200, the customer ends up paying Rs 1434 (almost 20% more).

Finally, we end up paying whopping 20 % extra !
Finally, we end up paying whopping 20 % extra !

Remember !

  • Service charge is different from Service Tax.
  • Service charge is retained by the restaurants and should ideally be distributed among all the employees.
  • If Service Charge is levied by the restaurant, a customer need not tip anymore!!!
  • Service Tax is collected by the restaurant and passed on to the government.
  • VAT is collected by the restaurant on behalf of the government.

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(Pre-edited image source)