2. Introduction to Service tax
Service Tax is a tax imposed by the Government of India on services
provided in India. The service provider collects the tax and pays the
same to the government. It is charged on all services except the
services in the negative list of services. The current rate is 14.5%
(including Swachchh Bharat Cess) on gross value of the service.
Service tax was introduced in India in 1994 by chapter V of the finance
act, 1994. The central board of Excise and Custom looks after the
regulation and collection of service tax.
Service tax has become a huge source of revenue for the government
of India since its inception. The revenue obtained from service tax in
the year 2014 was around Rs. 1,50,000 crores whereas same was
Rs. 407 crores in the year 1994.
3. Service Tax In Restaurants
When we eat in a restaurant, we are provided both food and
service. As we all know that supply of food or beverages ( in a
restaurant) is deemed sale ( as per article no. 366 of constitution
of India). All deemed sales are outside the scope of service tax as
they are liable to VAT, only service charges for supply of food or
beverages is taxable under service tax .
Service tax is applicable to only those restaurants, mess or eating
joints which have Air-conditioning or centralized heating facility in
any part of the restaurants.
But in the case of HOME DELIVERY by restaurants, service tax is
not applicable as there is no element of service in case of home
delivery and the same has been approved by court recently.
4. Service Tax VS. Service Charge
• Service tax is a kind of indirect
tax which is levied by the INDIAN
GOVERNMENT.
•Service tax is mandatory for all
restaurants having Air-
conditioning or centralized
heating system.
•The rate of service tax is 14.5%.
•Service tax is revenue of Indian
government.
•Service charge is nothing but an
enforced way to collect tips for
waiters.
•Service charge is not mandatory
for any restaurant.
•The rate of service charge
differs from restaurant to
restaurant.
•Service charge is income of the
owner of restaurant.
5. Abatement & Calculation of Service
Tax
As per the rules, abatement has been allowed for the levy of service
tax on the food served in restaurants, which says that service tax
should be charged only on 40% of food bill (Inclusive of service
charge but excluding VAT) . Thus effective rate of service tax for
restaurants is 40% of 14.5% i.e. 5.8%
Let us explain you with an example:
Calculation of service tax in restaurants is as follows:
Bill of food item 100
Service Charge(assumed 5%) __ 5
Subtotal 105
Service tax @ 5.8% * 105 5.18
VAT @ 10% (assumed) 105*10% 10.5
TOTAL 120.68
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