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How to Reduce Taxes ?

Everyone visits atleast once a month to mall/restaurant/theaters/pubs/bars/saloons/spas and so many other places where Service Tax, Vat are chargeable & everyone pay it.

Now, tell me who visits this places Doctors, Engineers, Businessmen, Industrialists, Politicians, Students, Workers, Government Officers who works with Sales Tax and Service Tax Departments & so many others.
Here scenario comes:

It is Friday evening. You are in a restaurant. You had nice full course dinner with soup, main course, followed by dessert. You checked the prices before and ordered. However, when the bill came, you were little shocked. The numbers did not match till you came across few items called service tax and service charge which inflated the bill by about 15% to 20%. Since this is Friday evening and you have been waiting for this for the whole week, you don’t question it and pay. We have all faced this situation in fine dining and not so fine dining restaurant. Almost all of us agree that the extra cost is high but none of us know the charges and taxes included in bill.

A simple thing made complicated

We have an uncanny ability to screw simple things and make it complex. Taxes and charges on seemingly simple stuffs like food and drinks are one such thing where customers are taken for granted. Let’s understand few terms that we see on our food bill often but do not understand.

Service charge

This is charged by the restaurant for the services rendered to you. This money goes to the restaurant. The establishments are free to charge any amount as service charges as there are no guidelines provided by the tax authority. The charge varies from 5% to 20%. Few restaurants don’t charge it. This is equivalent to the tips people usually give to waiters. If you are charged service charge in the bill, don’t pay tips as this charge is supposed to be shared among the staff.

Most of us don’t bother about it even when we feel the charges are higher. One reason is that we don’t think anything can be done about it. Secondly, we don’t want to spoil our evening because of this and argue with restaurant manager. However, the ground rule is that if the menu mentions service charges, you have to pay. If it doesn’t, you can question it.

Service tax

Many people confuse service tax with service charges. Service tax is the tax levied by the Government on the services rendered by restaurants. Service tax is same in all states. It is 12.36% on the 40% of the bill. The bill includes your food and drink and the service charge. The restaurant must be air-conditioned for the service tax. The problem here is that most of the customers are taxed at the full bill and not on the 40% of the bill as directed. To make things simple, service tax should be 40% * 12.36% = 4.94% on the total bill. Hence whenever you see service tax on the total bill exceeding about 5%, you can question it.

VAT (Value Added Tax)

There is another tax called VAT (value added tax) that is state specific. The rates can be as low as 5% and as high as 20% depending upon the states. Moreover, VAT for food items and drink are different. Many restaurants might club food items and drink and charge a flat rate on the total bill. In such cases, it is good to ask for separate bills for food and drinks. This should clearly show the different VAT for both the items.

Example

Let’s see how service charge, tax and VAT work with an example. Suppose you have dined in an AC restaurant and the price of food items is summed to Rs 1200. You will be asked to pay service charges (goes to the restaurant) and VAT and service tax (goes to Government)

Items Amount
 1 Bill of Food Tems 1200.00
 2 Service Charge (assuming 10.2%)* 122.40
 3 Sub Total 1322.40
 4 Service Tax @ 4.944% # 65.37
 5 VAT @ 12.5% on the Sub Total 165.30
Net Payable Amount (Total of 3+4+5) 1553.07

 

 

 

 

 

 

 

* Service Charge looks like Service Tax

# Service Tax should be 40% * 12.36% = 4.944% on the total bill.

 Many times, restaurants/pubs/hotels/saloons/spas  charge the highest rate on the total bill. This is general complaint by almost all the customers.

Know Invoice Format

help government of india
How people help government to reduce taxes

Service Tax Bill Invoice Format

Hotels and restaurants cannot collect VAT on service tax and service charge components.

I have attached here 4 bills only one bill is correct by Coffee Culture Surat.

1Kailash Parbat Franchisee Food Restaurant: His manager did not know about service tax, he said that CST is Service Tax and when I insist on service tax certificate, he had not and due to bill system updated service tax reg. no. is removed

2. Sugar n Spice chain food Restaurant: His manager just said SORRY.., what that means!!!

3. Kafe Red:  Didn’t Know anything.

Now question is, are they really paid this collected taxes to Government of India or their owner keep themselves

Conclusion

Most of the times, we cannot do anything about overcharging. The reasons are not only our unwillingness but also the ignorance of restaurant managers. In many cases though, you can question these items and get your bill corrected. Please remember that this will not be easy. However, you can always question and explain this to the restaurant manager and get your bill corrected. There have been cases where customers were able to reduce their bill.

Comments must be appreciated

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