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Restaurant Services? How much you pay as taxes

Have you ever check your restaurant bill?  Why it always come more than expected?

Also-Do You Know on Tuesday 9 june 2015-the finance Minister, Sh. Arun Jaitley  clarified that restaurants without air conditioning facility will not charge any service tax from their customers while the ones with ACs will charge only on the 40% of the total bill amount.

Which types of Restaurants are included and which are exempt?

The supplying of  food by restaurant is service or selling?

What is the difference between service charge and Service tax?

There are lots of questions for tax liability on restaurant bills and taxation.

Understand the legal background– 

Earlier to budget 2013 the service tax was applicable only to those air conditioner restaurant who serve alcohol. But the whole things got changed after notification number 3/2013 dated 1/03/2013.

?Before notification this services was taxable only for those have following essential:-

1.Restaurant /eating joint/mess having facility  of air-conditioning  or  central air-heating in any part of the establishment, at any time during the year, and

2.Having licence to serve alcoholic beverages.


In Notification 3/2013 the benefit of mega exemption i.e 25/2012 had withdrawn.

?Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year.

Change in rate of Service tax from 01/June/2015

From 1 June 2015 the rate of service tax has been changed to 14%, earlier was 12%.

Hence the effective  rate of tax after is 5.6%(60% abatement available), earlier the rate was 4.94%

Note: THE EFFECTIVE RATE FOR OUTDOOR CATERING IS  8.4%, earlier the rate was 7.42%


Now Understand this bill, I am taking VAT rate 12.5%, VAT is subject matter of State laws rates may be vary.

Restaurant bill invoice format










Now Answer to Queries

1. Why it comes more than expected?

Restaurant owner generally not mention tax amount and service charge in menu and the final bill comes with all taxes. That is why final bill seems costlier than expected.

In our example the taxes amount is rs. 373.20 and 200 is the Service Charge amount(as per new rates). Means total extra burden 573.20 which was not part of menu.

2.  Which types of Restaurants are included and which are exempt?

  • Restaurant
  • Eating joint or a Mess

and  having the facility of air-conditioning or central air-heating

means the restaurant having no air-conditioning  or  air-heating facilities are exempt from service tax, but chargeable to VAT.

Also note if, air-conditioning or air-heating facility are in the restaurant in any part, not necessarily to be at dining area, liable for service tax.

3.  Supply of food by restaurant is selling or service?

Restaurants not only sell food to you but also sell services in terms of waiter, hospitality etc.

Hence for food they require to charge VAT and For services provided Service Tax.

4. Difference between Service Tax and Service Charge.

Many restaurant generally billed service charge from customer, as discussed in above bill.  This is not service tax and its not imposed by any law.

Service charge is basis on the decision on the management of restaurant but service tax is levied by law in force i.e. service tax is mandatory.