Service charge collected by hotels is not service tax, Finance Ministry clarifies

The government today clarified that "service charge" collected by certain restaurants and hotels is not "service tax", which is levied at a rate of 5.6% on the total bill.

In a statement, the Finance Ministry said some hotels, restaurants and eateries, besides charging for the food and beverages, are also levying "service charges" in their bills which are retained by them.

Some of the consumers have a misapprehension that these "service charges" are being collected by the restaurant on behalf of the government as tax, it added.

"It is clarified that these 'service charges' collected by the restaurants/hotels/eateries are retained by the restaurants/hotels/eateries and are not 'service tax' imposed by the government," the Ministry said.

In case of air-conditioned eateries and hotels, the service tax at the rate of 14% is charged only on 40% of the bill amount.

The effective service tax rate in respect of services provided in relation to serving of food or beverage by a restaurant, eating joint or mess having the facility of air–conditioning or central air-heating in any part of the establishment is 5.6% of the total amount charged.

The government had increased the service tax rate to 14% from 12.36% (including education cess) from June 1.