Tax on restaurants

Restaurant Bill

Nowadays Restaurant bills are quite confusing for everyone, after having a delicious dinner Restaurant bill makes you uncomfortable. because of too much tax collected on bill, around 30% above the menu price, and if you ask to Restaurant captain or Manager they fail to explain it. It’s common.

When you see the bill, below Questions may rise.

- Why the VAT And Service Charge Collected On Sales

- Why The Service Charge Collected For Total Sale Instead of Collecting Only On Service charge

1. Why The VAT And Service Charge Collected On Sales;

As per KVAT 14.5 % Is Applicable On 100 % of Food & Beverages Sales (Not Applicable on Service Charge) and. With effect from 01.03.2014 KVAT 5.5 % On Liquor Sales (Not Applicable on Service Charge)

Service Charge, The current Rate of Service Charge is 12 % + E C 2% + S&H E C 1 %  

= 12 + (12x2%=0.24) + (12 x 1%= 0.12) 12.36 %

It is notified (Notification No. 24/2012 - Service Tax) That 40% Of  An Activity Wherein Goods   Being  Food Or Any Other Article Of Human Consumption Or Any Drink (Whether Or Not Intoxicating) Is Supplied In Any Manner As A Part Of The Activity At A Restaurant Or As Outdoor Catering, Shall Be The Specified Percentage Of The Total Amount Charged For Such Supply

So For Restaurants It is    40 x 12.36 = 4.944 %

For Out Door Catering      60 x 12.36 = 7.416 %

2)Service Charge Collected for Total Sale Instead of Collecting Only on Service charge?

Above illustration is clarifying this doubt there is only ST 4.944 % on Gross Sale Which Is TAX On 40% Actual Sales Value. But if there is Any Portion of Service Charge Charged on Bill That Will also include to this service portion Then the Gross Sales Value Will be 100+ Service Charge and ST Is Applicable Of Service Charge As well As 40 % Of Sale Bothe Liquor Beverages And Food.

For Example;

Sale of Food                                50.00

Sale of Liquor                              50.00

Service Charge   10%                 10.00

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Gross Sales                               110.00

Out Put VAT 14.5 on Food Sale  7.25

Out Put VAT 5.5 % on Liquor      2.75  

Service Tax 4.944 %                5.4384          

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Total                                    125.4384

Thanks