VAT & Service Tax on Restaurant Bill
The Value Added Tax or VAT (as is popularly known) essentially existed before the Goods and Services Tax (GST) came into existence. Service tax also used to exist before GST wherein the service provider finally passes the amount to the Government.
A weekend restaurant bill often manages to shock us more than our salary slips with income tax deductions. The number of taxes and charges on the bill can be confusing to anyone who doesn't understand the taxation system. To demystify the restaurant bill, it is important to understand what items fall under which tax and how the restaurant charges us.
Service Tax in a Restaurant Bill
Service tax is a levy collected by the Central Government for the provision of certain services. The service tax has to be paid by the service provider to the government, and in turn the service providers pass on the amount to the customers. Service tax is a uniform tax across the country (though it is not applicable in Jammu and Kashmir), and is payable only if the services provided in a fiscal year is equal to or more than Rs. 10 lakh.
Taxable services include travel agency, courier services, chartered accountancy, banks, fashion designing, internet cafes, cab rentals, architectural services, telecommunications, and health clubs. Many people think that Service Tax cannot apply to restaurants. But the fact is that any restaurant that provides additional service to its patrons - that is to say, something more than just food and beverage, such as air-conditioned seating, waiters and attendants, sommelier, etc. - then they fall under the ambit of service tax. This change was brought about in the 2012 Budget.
Rate of Service Tax
Service tax was abolished when GST replaced it on 1 July 2017. Restaurants today charge GST instead of service tax — typically 5% (without input tax credit) for standalone restaurants, or 18% for restaurants located within hotels charging room tariffs of Rs.7,500 or more per night.
Service Charge in a Restaurant Bill
We always wonder why our restaurant bills have both service tax and service charge, and assume that the restaurants are overcharging us. While service tax is a central government levy, service charge depends on the restaurant. Service charge is nothing but tips that you generally give your waiters. Usually, high-end joints, pubs and fine dining restaurants add service charge to the bill, as a way of ensuring that their staff gets the tips due to them for serving you. This service charge collected is distributed equally among the waiters, kitchen staff and cleaning staff at the restaurant. In a way, you are paying part of the restaurant staff's perks and bonuses.
There are no guidelines on how much service charge can be levied on a customer. So you will notice that the service charge varies from 4% to 10% of the bill. If you are unsatisfied by the service, you are free to complain to the management about the charge forced out from you. However, remember that you do not need to put additional tips for your waiter if you have already paid service charge in the bill.
VAT in a Restaurant Bill
Value Added Tax (VAT) is levied on items that are sold in an improved form, where value is added to an item before it is sold to you. One has to pay VAT on goods and services at various stages of their production, distribution and sale. In restaurants, VAT is not chargeable on packaged items such as drinking water, bottled alcohol and food. But it is applicable on food and drinks prepared in the restaurant kitchens.
VAT on restaurant food and beverages was replaced by GST nationwide, including in Karnataka and Maharashtra, with effect from 1 July 2017. Restaurant bills today attract GST instead — typically 5% (without input tax credit) for standalone restaurants, or 18% for restaurants within hotels charging room tariffs of Rs.7,500 or more per night (as of July 2026).
The next time you visit a restaurant, you will be able to understand the additionally charges better, and question the management if you find any calculation wrong. Do not allow yourself to be duped - always check the bill carefully before making the payment.
FAQs on VAT & Service Tax on Restaurant Bill
- Are restaurants taxed under service tax?
No. Service tax was abolished when GST replaced it on 1 July 2017. Restaurants now charge GST instead — typically 5% (without input tax credit) for standalone restaurants, or 18% for restaurants within hotels charging room tariffs of Rs.7,500 or more per night.
Disclaimer
Credit Card:
Credit Score:
Personal Loan:
Home Loan:
Fixed Deposit:
Copyright © 2026 BankBazaar.com.