Deciphering restaurant bill post budget

[Update: 24/Apr/2013] Restaurants and hotels across India will remain shut on April 29 in response to a call by the Hotels and Restaurants Association of India (HRAI) to protest against the new service tax by the central government.

Eating at AC restaurants like Speciality Group‘s Mainland China etc got dearer – [ref: Dine and While], as they are increasing prices by 5-10%. The ‘Indian Restaurant Report 2012′ released by Franchise India last month estimated the current market of Indian restaurant industry at Rs 75,000 crore and forecast it to reach Rs 1,37,000 crore in 2015, growing 17 per cent a year. But the last two quarters have seen growth slowing down on account of cautious consumer sentiment, with brands such as Jubilant FoodWorks’ Domino’s Pizza and McDonald’s reporting lower same-store sales than last year.

Further to Revenue Department’s bringing such restaurant under Service Tax as of CBEC circular 2 years ago in Feb, 2011, the service tax was increased. According to new fare, the calculation needs to be done as follows:

Charges Final Cost
MEAL Rs. 5,000 Rs. 5,000.00
SERVICE CHARGE 10% on food bill Rs. 500.00
SERVICE TAX 4.95% on food cost + service charge Rs. 272.25
VAT 12.5% on food cost + service charge Rs. 687.50
Total Rs. 6,459.75
You pay a maximum tax of 29.19%

Service Charge

The levy is usually 5-10%, although there is no minimum or maximum. The restaurant can decide the rate as per a February 28, 2011 circular. The amount raised is to be shared among staff. For instance, Sea Lounge at the Taj Mahal Palace doesn’t levy a service charge. If Service Charge is included, you need not include tip. Many patrons overlook this and end up paying twice. So, it is nice of Barbeque Nation Andheri West to put up this notice.

No tip at BBQ Nation

BBQ Nation Service Charge, so no tip

Service Tax

All restaurants don’t necessarily show it on t he bill.

VAT, Cess and Charity

These are other components.

I am reproducing 2011 circular as it relates to restaurant:

1. Services provided by a restaurant


Restaurants provide a number of services normally in combination with the meal and/or beverage for a consolidated charge. These services relate to the use of restaurant space and furniture, air conditioning, well-trained waiters, linen, cutlery and crockery, music, live or otherwise, or a dance floor. The customer also has the benefit of personalized service by indicating his preference for certain ingredients e.g. salt, chilies, onion, garlic or oil. The extent and quality of services available in a restaurant is directly reflected in the margin charged over the direct costs. It is thus not uncommon to notice even packaged products being sold at prices far in excess of the MRP.


In certain restaurants the owners get into revenue-sharing arrangements with another person, who takes the responsibility of preparation of food, with his own materials and ingredients, while the owner takes responsibility for making the space available, its decoration, furniture, cutlery, crockery and music etc. The total bill, which is composite, is shared between the two parties in terms of the contract. Here the consideration for services provided by the restaurants is more clearly demarcated.


Another arrangement is whereby the restaurant separates a certain portion of the bill as service charge. This amount is meant to be shared amongst the staff who attend the customers. Though this amount is exclusively for the services it does not represent the full of value of all services rendered by the restaurants.


The new levy is directed at services provided by high-end restaurants that are air-conditioned and have license to serve liquor. Such restaurants provide conditions and ambience in a manner that service provided may assume predominance over the food in many situations. It should not be confused with mere sale of food at any eating house, where such services are materially absent or so minimal that it will be difficult to establish that any service in any meaningful way is being provided.


It is not necessary that the facility of air-conditioning is available round the year. If the facility is available at any time during the financial year the conditions for the levy shall be met.


The levy is intended to be confined to the value of services contained in the composite contract and shall not cover either the meal portion in the composite contract or mere sale of food by way of pick-up or home delivery, as also goods sold at MRP.

Finance Minister has announced in his budget speech 70% abatement on this service, which is, inter-alia, meant to separate such portion of the bill as relates to the deemed sale of meals and beverages. The relevant notification will be issued when the levy is operationalized after the enactment of the Finance Bill.

About prasoonk

Prasoon Kumar grew up in the Bokaro Steel City of south Bihar, now Jharkhand. He studied Computer Science and Engineering in IIT Kanpur. For job he moved to the land of opportunity, United States. He was there in the bay area through the internet revolution of mid to late nineties. He spent time admiring the beautiful coastline of California among other things. He moved east coast to the New York after the turn of the millennium working in a brokerage startup. Afterwards, he is back to India for good. He has been working in the enterprises and internet startup, enjoying the city life. He has a beautiful wife, a young 5 years old daughter and 11 years old son.

Posted on April 2, 2013, in Economy & Business, India, Mumbai, Restaurant and tagged , , , , . Bookmark the permalink. Leave a comment.

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