Service Charges In Indian Restaurants – Is A Forced Tip [India]


Are service charges in Indian restaurants legal?
I know that you would have definitely encountered this NEW type of charge in your restaurant bill which is called ‘SERVICE CHARGE’. Actually, it is not a new item on expensive restaurants and 5 star hotels, but comparatively a new one on smaller ones.
Service Charges In Indian Restaurants Bill Is A Forced Tip
I have recently noticed this trend and thought of writing this article as most of us don’t know (at-least i did not knew) that ‘Service charge’ is a forced tip!! Yes, restaurants generally add about 5-10% of the bill amount as service charge which is shared with waiters and kitchen staff.
And if you are generous enough to pay tip over and above this amount, they will be highly honored to receive it!!

To give you a brief idea about the taxes and other charges that might come up in your dining bill in India, I have created a small sample bill here.

Service Charges In Indian Restaurants Break Up Summary

ABC Dining

ItemQuantityPriceAmount
Dal Makhni1100100
Paneer Makhni1150150
Chicken Biryani1200200
Naan22550
Sub-Total500
Service Charge@10%50
Service Tax@10.3% on 30% of total (500+50)17
VAT@12.5% of total (500+50)69
Final Amount636

Service tax and VAT are two types of taxes that go into the government pocket.
Both are calculated on the food bill amount + any service charges. This is because taxes need to be calculated on whatever goes into restaurant’s pocket.

Contrast this with the tip that you would have given in cash or added to credit/debit card receipt where you don’t any tax whatsoever!!

Service tax is calculated @10% + 3% (education cess) on the total bill amount at the time of writing this article based on current tax slabs. It is only calculated on the 30% of the bill amount as it is a tax on the restaurant services and not the food. And since it is difficult to segregate food from services, it was decided by government to take the service component as 30% of total bill amount.

VAT is a value added tax and can vary from state to state. Most of the states in India have kept it at 12.5% of total bill.

30% of your bill comprises of tax + Service charge only

If you take a careful look at the sample bill above, you would realize that we almost pay 30% more than what we ate! Yes, taxes and service charge together (Rs. 136) increase your actual (Rs. 500) bill amount by 27.2% (136/500 *100). This is pretty high!

So, next time, plan your dining out carefully and wisely

Some points to ponder

  1. If you pay service charges in Indian restaurants, there is absolutely no need to pay the tips.
  2. There is no obligation on your part to pay service charge unless restaurant has clearly specified it in its menu or any other prominently visible place. This is because, when you order food in a restaurant, you agree to their terms and conditions and are bound to pay the charges that they levy.This essentially means that you can deny to pay service charge if you were not informed by restaurant about them before placing the order and they were not mentioned on menu card either.
  3. Service tax and VAT are government charges and you can’t skip them even if they are not mentioned on menu or any other place in restaurant.

I hope this article would have cleared some of your doubts about the service charges in Indian restaurants. I got the chance to dine at the restaurants in USA and the situation is a bit more transparent here with respect to service charge. They have a concept of Gratuity which is almost mandatory more than customary!


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