Deconstructing a Restaurant Bill
These are exciting times in the food industry with more and more restaurants opening up across the city. But as a consumer the excitement is marred by general rule of economics; more specifically inflation, price hike and the biggest woe of all, taxation.
It is not uncommon to find a disgruntled customer taking to social media claiming that they have been cheated into paying incorrect amount on their bills. Truth be told, the complicated structure of Indian taxation system leaves even restaurateurs confused and chances are that the restaurant manager and staff don’t know the details. This however is not an excuse.
We broken down the components of a restaurant bill to help you understand how these taxes are levied. Service Tax is the Central government’s prerogative, while Value Added Tax (VAT) is State’s and they are levied on the basis of what sort of an eating establishment you are at. For our reference we are looking at restaurants which serve alcohol and provide air conditioning.
Service Tax on restaurant food bills was first introduced in 2011, where air conditioned restaurants serving alcohol had to pay a service tax of 12.36% on 40% of the bill. Last year it was decreed that all restaurants which provide complete or partial air conditioning will now have to adhere to this taxation.
To make matters simple, you are expected to pay 4.94% Service Tax on the entire bill amount. The billing amount should be inclusive of food, drinks and service charges.
Value Added Tax (VAT)
This tax differs from state to state. In Mumbai and Maharashtra, 12.5% VAT on the total bill is the norm. You should always pay attention to the fact that VAT for food and drinks are to be calculated separately as there are different VAT categories for different elements of the menu. To simplify matters for both restaurants and guests, often separate food and drinks bill are generated and the sum total is combined. Pankil Shah, co-owner of Neighbourhood Hospitality which runs the 2 Woodside outlets in Mumbai, of explains, “Separate bills for food and alcoholic drinks are created simply because it is easier to calculate the VAT component for us. It also gives the customer more clarity.”
While your bill is all about the food and drinks you have consumed, service charge is for the people and staff who helped service you. Consider it a fancy way of describing a tip. And frankly, we prefer a service charge being added to the bill rather than be confused and embarrassed about what is the appropriate amount to leave.
Restaurants have the discretion to charge what they feel is appropriate as service charge; mostly it is between 5-10% of the total billed amount. Please do not mistake it as a tax; this amount is ideally be divided amongst the staff of the restaurant.
If you’re total food and drinks bill is for Rs 1000, keeping in mind the restaurant is charging 10% as service charge which is Rs 100, 4.94% as service tax which is Rs 54.34 and 12.5% VAT which comes to Rs 125 (VAT should be calculated separately for food and drinks). You will finally be shelling out Rs 1279.34.
If you at anytime feel that there are discrepancies in your bill, you are within your right to raise queries about it. At Woodside, Shah ensures that they keep copies of the government tax directives which they share with the guests also explaining the methodology of the calculation.