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Charges And Taxes In Restaurants

We have an uncanny ability to screw simple things and make it complex. Taxes and charges on seemingly simple stuffs like food and drinks are one such thing where customers are taken for granted. Let’s understand few terms that we see on our food bill often but do not understand.


  1. Service Charge

Service Charge is levied for the services provided by the establishment to its customers. Though the establishment is free to charge any amount, it is generally 5% to 10% of the bill that is levied as service charge. However, it must be noted that such a charge must be displayed in the Menu card. If it is not displayed, then you can question such a charge.

2.Service Tax

Service tax is levied by the Central Government and is therefore the same in all states. The tax is computed on 40% of the bill. Service tax is applied after Service Charge is levied. The restaurant must be air-conditioned for the Service tax to be applicable.

  1. Value Added Tax (‘VAT’)

VAT is levied by the State Government and is therefore different in different states. Generally the amount charged varies from 5% to 20%, depending on the state. VAT is levied after Service Charge. It is not applied on the amount including Service tax.

Let’s understand this with an example of a restaurant bill for an amount of Rs 1000/-.

Items                                                                                  Amount
Your Total Food Bill                                                                  1000
Service charge (assuming 4 percent)                                         40

Sub Total                                                                                   1040

Service Tax to be levied on (40% of subtotal i.e. 1040)             416
Service tax @ 12.36% on 416.00    51.41
VAT (assumed) @12.5 of subtotal i.e. 1040                              130
Total amount to be paid (1000+40+51.41+130.00)                  1221.41


Most of the times, we cannot do anything about overcharging. The reasons are not only our unwillingness but also the 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 reduce their bill.

So the next time you visit a restaurant, your bill will surely make more sense to you. Keep dining and bon appetit !