Service charges in your hotel bills not 'service tax'

The ministry reiterated that the service tax paid to air-conditioned or centrally heated eating joint is not 14% but 5.6%

The common man may be under the impression that service charges collected by restaurants and hotels go to the government kitty. To set the record straight, the finance ministry on Tuesday explicitly stated that the 'service charges' collected by these eateries is retained by these entities only and should not be confused with the 'service tax'.

According to the government, some restaurants, hotels and eateries - besides charging for the food and beverages - are also charging 'service charges' in their bills.

"Some of the consumers have a misapprehension that these 'service charges' are being collected by the restaurant on behalf of the Government as tax," the ministry said in a statement.

The ministry reiterated that the service tax paid to air-conditioned or centrally heated eating joint is not 14 per cent but 5.6 per cent. It is so because there is 60 per cent abatement.

The ministry had earlier clarified that the eateries not having air-conditioned or central heating facility would not be charged the service tax.

"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 per cent (14 per cent of 40 per cent) of the total amount charged."

The ministry had earlier clarified that the eateries not having air-conditioned or central heating facility would not be charged the service tax.