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Likely government intervention to lower steep restaurant bills

Eating out is seen getting less expensive in the coming days.

According to a Hindustan Times report, the tax department plans to issue guidelines for restaurants to curb the arbitrary — and often illegal — imposition of service charges.

The report added that the move comes months after the government clarified that the service charge levied by restaurants is not collected by the government. It is a charge that restaurants levy for rendering services — in simple terms, a sort of mandatory tip, and these charges vary from restaurant to restaurant.

The report quotes a government official saying that customers do not know that they are not liable to pay tax on top of another tax or a service charge. It is wrong for restaurants to levy service tax on the VAT component or service tax on the service charge component. Charging 14% on the entire food and beverage bill is also wrong. The Centre will soon introduce guidelines spelling out the principles of service tax and explain where and how it must be charged.

As tax experts, the service tax should be charged only on services and not goods, namely, the food consumed. VAT should be charged on the sale of food. Also charging of VAT on manufactured items like bottled water is wrong.

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