Decoding service tax Finmart

DECODING SERVICE TAXIn Restaurants

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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.

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.

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.

Abatement & Calculation of Service TaxAs 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 100Service Charge(assumed 5%) __ 5Subtotal 105Service tax @ 5.8% * 105 5.18VAT @ 10% (assumed) 105*10% 10.5 TOTAL 120.68

Real Life Example

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