Service charges at restaurants are not government service tax

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Service charges at restaurants are not government service tax
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The government cleared the common misconception of thousands who thought that service charges collected by restaurants/hotels/eateries are ‘service tax’ imposed by the government. It is not.

"Some restaurants/hotels/eateries besides charging for the food and beverages are also charging 'service charges' in their bills. The proceeds of the 'service charges' are retained by the restaurants/hotels/eateries," a Ministry of Finance press release said.

"It is further clarified that effective service tax rate in respect of services provided in relation to serving of food or beverage by a restaurant, eating joint or mess having the facility of air-conditioning or central air-heating in any part of the establishment is 5.6% (14% of 40%) of the total amount charged," the release added.

The new service tax rate of 14 per cent came into effect from June 1, a move that made eating out in restaurants, insurance and phone bills expensive, among many other things.

In his Budget speech, Finance Minister Arun Jaitley had said that to facilitate a smooth transition to levy of tax on services by both the Centre and the States, "it is proposed to increase the present rate" of service tax plus education cess from 12.36 per cent to a consolidated rate of 14 per cent.
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Service tax is levied on all services, except a small negative list.

Advertising, air travel, services of architect, certain type of constructions, credit card, even management, and tour operator are some of the important services which attract tax.

(Image credits: thisisbeirut.wordpress)