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GST on Service Charge in restaurants - How GST is charged on invoice in restaurant, hotels, café and bar on service charge component

By Paras Mehra

( 11.8K Views) July 12, 2017

Now Pay GST on Service Charge in Restaurant, bar etc.

1.0 Introduction

GST on service charge component has come up with a surprise to many restaurant owners etc. This is because the service charge component is distributed among the waiters and staff and the same does not form part of the revenue of the restaurant.

However, now the GST shall be applicable on every component of the bill and which shall include the service charge as well. Let us proceed on to discuss it in detail.

2.0 What is Service Charge and how it is different from service tax?

Many people confuse themselves between a service charge and service tax, however; both these terms are completely different from each other. Let us understand each of the terms:

Service charge is the charge levied by the restaurant on all the bills and the same is distributed between the staff and the waiters who work there. It is can be understood as a tip. The rate of the service charge is 10%.

Service tax is the indirect tax levied by the central government and collected in the manner as prescribed. From 1^st July, the service tax has ceased to charge and shall be subsumed under GST. The rate of service tax was 15%.

3.0 GST payable on service charge component

The service charge has been brought into GST tax net w.e.f 1^st July 2017. Now, the restaurant, bar, café, hotels shall have to charge GST on the service charge component as well to avoid any penal action from the government.

4.0 Status of VAT on Service charge component

In the existing VAT laws, service charge component was free from VAT liability, this is because service charge does not form part of restaurant revenue, rather it is distributed among the staff member, waiters etc.

Hence, under VAT laws, service charge was a tax-free component.

5.0 What is the rate of GST on service charge component?

Whatever GST rate is applicable on the restaurant, the same rate shall be applicable to the service charge component and no different GST rate shall be applicable. For example:

If the restaurant is neither Air conditioned nor liquor is served, then GST rate is 12%.
If either liquor is served or AC facility is there, then GST rate is 18%.
If the restaurant is in the five-star hotel, then GST rate is 28%.

6.0 GST on service charge calculation with example

Mr A went to a restaurant in Delhi and ordered food along with liquor. After having his dinner, he asked for a bill. His bill was as under:

Food Rs.500
Liquor Rs.1000
Service Charge @10% Rs.150.

Kindly advice how GST shall be calculated in above case?

A. GST in India is not applicable on alcohol made for human consumption and therefore, GST shall not be calculated rather VAT shall be calculated on it. Hence, the GST of 18% shall be charged on Food (Rs.500) and service charge of Rs.150.

7.0 Conclusion

In case you have any query, kindly write to us at info@hubco.in.

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