How Restaurant Bill is Calculated in India? VAT, Service Tax, Service Charge Calculation Explained

14 Jun



How many times hasn’t your bloated restaurant bill left you clueless as to how components like VAT (Value Added Tax), ST (Service Tax), SC (Service Charge) etc are being calculated?

Worry no more…

Without complicating the matter much, let me explain how a typical restaurant bill break up is arrived at as per the prevailing taxing norms as of June 1, 2015.

VAT, ST and SC

The following are the rules for calculating VAT, ST and SC.

VAT is typically charged at 14.5% on all food items and non-alcoholic beverages (includes, packaged water, juices, mocktail etc).

VAT for alcoholic beverages and cocktails is 5.5%.

SC is charged at restaurant owner’s will. This can vary from 0% to 20%. This is like an in-built tip and if Service charge is levied, it has to be clearly mentioned in the menu.

ST is calculated at 5.6%. Service Tax is actually 14% and it is applicable on 40% of the total bill (Including food total + Service charge).

ST* = 5.6%, i.e. 14% of 40

Notes:
(i). As per the government rule, the Service Tax is applicable only to those restaurants and food joints having the air-conditioning or central air-heating facility
(ii). VAT should not be levied on the Service Charge part. There are some restaurants who do such wrong calculation practices (See comments section)
(iii). ST* has been hiked to 5.8% (Including Swachh Bharat Cess or SBC) after this article was written
(iv). ST* has been hiked further to a total of 6% (Including SBC and KKC – Krishi Kalyan Cess) in 2016

A Sample Restaurant Bill Calculation

Attached here is a sample restaurant bill that I recently (after June 1st, 2015) got from our family dine out.

indian restaurant bill with VAT, ST and SC
(Click on the image to Enlarge)

The table below explains how the above bill amount is calculated.

Please note that some restaurants may provide separate bills for alcoholic beverages and the food. In such cases the applicable VAT is different for both the bills.

Particulars Amount
A. Alcoholic Beverages
(330+680)
1010.00
B. Food & Non-Alcoholic Beverages
(170+160+260+320+300+360)
1570.00
C. Service Charge @ 10% for this place
(10% of A+B)
258.00
D. VAT for Alcoholic Beverages @ 5.5%
(5.5% of A)
55.55
E. VAT for Food & Non-Alcoholic Beverages @ 14.5%
(14.5% of B)
227.65
F. Service Tax @ 5.6%, rounded
(5.6% of A+B+C or 1010+1570+258)
158.93
Total Net
(A+B+C+D+E+F)
3280.13


Hope that explains how the final rounded bill amount of Rs.3280/- is arrived at. Next time, please pay attention to your bill details because many restaurants may not have changed their billing system yet.

Happy Dining!

43 Responses to “How Restaurant Bill is Calculated in India? VAT, Service Tax, Service Charge Calculation Explained”

  1. SUCHITH 27. Aug, 2015 at 8:39 pm #

    NICE EXPLAIN …… SOME OF PPL WILL SHOUT AT THE CASH POINT PLEASE READ THESE THINGS BEFORE AT ANY RESTAURANT

    • Aakash Aggarwal 03. Nov, 2015 at 10:18 am #

      Dear
      i hv doubt in this calculation:
      service tax is charges at 40% considering the service component in the value of the goods
      if goods is valued at Rs. 100 than the service component is considered at rs 40 and rest 60 is the actual value of the goods thus the VAT should be charged only on Rs 60.
      pls consider
      Aakash Aggarwal
      9910991353

  2. Suhaas 07. Oct, 2015 at 9:50 pm #

    To: Mr Ajith Prasad Edassery

    Hello!

    According to the Sunday Times of India dated 4 October 2015 (please refer page 1 and page 8),

    (1) “Liquor VAT” = Liquor and Service Charge on Liquor.
    Therefore, your 5.5% of Liquor VAT on Alcoholic Beverages should have been Rs. 61.11 instead of Rs. 55.55.
    (2) “Food VAT” = Food and Service Charge on Food.
    Therefore, your 14.5% of VAT on Food and Non-alcoholic Beverages should have been Rs. 250.42 instead of Rs. 227.65.

    If Times of India is actually right, then you have been billed Rs. 28.33 less by the restaurant.

    If you think the Times of India is wrong, please let me know.

    Thanks for your attention.

    Suhaas

  3. wafa 22. Nov, 2015 at 10:50 am #

    Hello…
    I do have a doubt..if service tax is charged on an amount @ 40% of that amount × 14.36%..then what about VAT? Actually it should be laid on 60% of that amount × VAT rate ?
    Please do inform me the answer as soon as possible..
    Hope you will give me a perfect answer.

    • Ajith Prasad Edassery 25. Nov, 2015 at 4:14 pm #

      As per my web reading (I am not a CA or Tax expert) the Service Tax law states that it’s to be levied on 40% of the bill amount. The VAT law states clearly that it’s to be charged on the entire bill (food and beverages bill, here). Hence, the restaurants’ logic seem to have some base.

      However, there’s an interesting case and ruling (Thanks to the commenter and a Lawyer Mr. Aakash Agarwal above for pointing me to this case) by the High Court of Uttarakhand whereby it’s mentioned that VAT has to be charged only on the remaining 60% – perhaps apportioned accordingly on food and beverage as applicable. It’s not clear why none of the restaurants have followed it yet. Perhaps, we need an online campaign to get this streamlined.

      The link to the case below:
      http://taxguru.in/service-tax/vat-leviable-40-restaurant-bill-subject-service-tax.html

    • rajendra salvi 18. Dec, 2015 at 5:11 pm #

      YES. I AGREE WITH YOU WAFA.
      IF OUT OF RS. 100/- 40% IS SERVICE TAX COMPONANT
      THEN VAT TAX COMPONENT SHOULD BE 60%
      RS. 40/- FOR SERVICE TAX
      RS. 60/- FOR VAT TAX

  4. vikash shashvat 28. Nov, 2015 at 1:42 pm #

    Vat is 12.5 % and service tax 5.8 %.How could u calculated 14.5% ???
    is it too much for customers ?
    What parameter used for charging VAT ,SC n ST ??

    • Ajith Prasad Edassery 28. Nov, 2015 at 6:19 pm #

      It’s not my rates but the Government fixed rates :) Only the Service Charge varies from restaurant to restaurant.

    • SUHAAS 08. Jan, 2016 at 1:35 pm #

      Value Added Tax (VAT)
      (1) In India, varies from state to state.
      (2) For example, in Karnataka food VAT is 14.5%.

      Service Tax (ST)
      (1) Remains same throughout India.
      (2) Earlier, ST was 14% of 40% of the total bill (including service charges) which is the same as 5.6% of the total bill (including service charges).
      (3) In 2015, Central Government made it mandatory to add 0.5% to ST toward Swach Bharat Cess program which came into effect from 15 November 2015.
      (4) Therefore, ST is 14.5% of 40% of the total bill (including service charges) which is the same as 5.8% of the total bill (including service charges). Hence, AC restaurants are legally entitled to charge 5.8% ST.

      Service Charge (SC)
      (1) Varies from restaurant to restaurant.
      (2) Some restaurants charge 4%, some 10% and some even more.(3) SC should be distributed among staff members.

      If you want to know as to why the government is charging certain amount for VAT and ST, you will have to talk to an experienced chartered accountant.

      • prosenjit 01. Sep, 2016 at 11:33 pm #

        our total bill is rS. 743.00 And added Vat Rs. 97.59.
        How this charges is calcullated

  5. Ankit Verma 12. Dec, 2015 at 7:40 am #

    Hi Ajith,

    First & foremost thanks for the enlighting detailed description, which actually helped a lot to me in understanding the architecture of portion of bill remain puzzled since forever.
    I actually started paying ‘attention’ rather than paying ‘fraud money’ to many of outlets.

    But I still have some doubts though if u please can take a look at them –
    1. As mentioned SC is applicable only at AC facilities, still I have come across chains of dinners and fast food corners who are serving in open areas like roof top or within premises of Malls etc who doesn’t exempt us from these taxes. As matter of fact CCD was one of them. Still nobody objects or regulates this harassment of the consumer. Is there any other way to deal with these kind of frauds at a bigger/better scale. Because as already given one example, this amount can turn up in millions at country level scale.
    2. Though I am clear about it but still few readers might not read length of conversation with Mr. “Suhaas” and make conclusion. So for them can you edit/add in the description itself that VAT should not be applied on SC.
    3. In this tech prone world we all are addicted on wasting time on mobiles for no reason still no one has lil extra time/will to do math at time of paying bill. So are u aware of any mobile app which can readily calculate the bill effectively (given all components are variable and u can customise the tax percentage, food/alcoholic/nonalcoholic price)

    Thanks
    Ankit

    • Ajith Prasad Edassery 12. Dec, 2015 at 9:21 am #

      Ankit,
      1. I think, we have to deal with such people on a case to case basis and inform the authorities
      2. I have updated the article with your suggestion. Thanks.
      3. Not sure about any such mobile apps. Even if there’s one, you will have to calculate food/alcohol bill separately and input the same. You could as well use your calculator ;)

      • rawraj 16. Dec, 2015 at 1:30 pm #

        Its ST that is to be applied only in AC premises.
        SC is service Charge that has nothing to do with govt. Restaurants can charge any amount. Many charge 10%. This is distributed between staff. If there is a Service Charge there is not need to Tip.(or you can tip less depends on how much % you tip)

  6. Ramesh Kumar 26. Jan, 2016 at 7:57 pm #

    ST has not been hiked to 14.5 %… It is still 14%… Additional 0.5% is SB cess, and not to be merged with Service tax. ST is cenvatable, but SB cess is not cenvatable as of today. Further ST and SB cess are to be shown separately in the bill

    -Ramesh Kumar

  7. Aakash Aggarwal 27. Jan, 2016 at 1:35 pm #

    there is a Uttrakhand High Court Judgment which favours my contention that the VAT should be charged only on the 60% of the value of the goods. (refer Vally Hotels & Resorts)

  8. Dhruv Jain 08. Feb, 2016 at 8:52 am #

    Hi Ajith,

    I have a query. As mentioned in your article that VAT(14.5%) will be charged on juices,mocktails and MINERAL WATER. Wanted to make sure that do packed items(not made within restaurant premises) are also charged with VAT?

    • Raja 15. Feb, 2016 at 5:09 pm #

      I think no

  9. Raja 15. Feb, 2016 at 5:08 pm #

    Hey anyone plz tell me why i have been charged SC on VAT 5% and is it ok or wrong…

  10. MANOJ SHARMA 26. Apr, 2016 at 6:36 pm #

    Friends please let me know the this fact of VAT that will be charge on 60% of gross. this will also applicable on Construction business where Composite contract are in use (Material+Service)VAT & Service tax together. is that in 60% & 40% ratio VAT will charge on 60% or on total of bill, the client is also deducting WCT 4% in Uttar Pradesh.

  11. Pavan Sabnis 22. May, 2016 at 3:27 am #

    Can a single bill have two VAT ?
    One at 14.5% and other 20%
    Itz burger king restaurant bill.
    State : Karnataka

  12. anshul jagannath 15. Jun, 2016 at 9:19 pm #

    yes.. first VAT(14.5%) is on food ..other is on drinks(coldrink shakes juices,etc)

  13. Sayan 26. Jul, 2016 at 12:15 am #

    Can they over charge on packaged drinking water MRP?

    • Ajith Prasad Edassery 01. Aug, 2016 at 5:01 pm #

      No idea. In general nothing ‘when served’ is available at MRP. Just like water, soda or wine bottles.

  14. varshinidevi 26. Jul, 2016 at 11:20 am #

    Wonderful!! this is really one of the most beneficial blogs I’ve ever browsed on this subject.After read this i get some idea about vat charges thank you for sharing this good info with us.

  15. Rajat A 07. Sep, 2016 at 12:02 pm #

    Trying to figure out this bill, any help/explanation would be appreciated.

    https://s12.postimg.org/abu5zvkkd/Bill_fishermanswharf.jpg

    My basic analysis:
    service charge on total bill amount of 5085 = 381.39
    reverse calculation: 7.5% (fairly accurate)

    vat@14.5% = 281.37
    reverse calculation: charged on a value of 1940.48
    closest items total is for food+waters = 1930 (discrepancy of 10)

    vat@5.5% = 182.11
    reverse calculation: charged on a value of 3311
    closest items total is for liquor+soda = 3155 (discrepancy of 156)

    vat@20% (???) = 43.01
    reverse calculation: charged on a value of 215.05
    closest items total is nothing really (discrepancy of 215.05)

    • Ajith Prasad Edassery 08. Sep, 2016 at 10:57 am #

      Rajat,
      I went through your bill. This is what I could figure out.

      a. Food bill – 1555
      b. Alcohol – 3080
      c. Non-packaged beverage – 250
      d. Packaged beverage – 200

      e. Total 5085

      f. Service charge @ 7.5% – 381.38 (they rounded to 381.39!)

      g. VAT @ 14.5% on food and non-packaged beverage (a + c + service charge on that part)- ~281.37

      h. VAT @ 5.5% on alcohol (b + service charge on that part) – ~182.11

      Issues:
      1) VAT on Packaged beverage is charged at 20% and this is a crime as VAT cannot be charged on packaged foods. Typically, they would have charged a premium on MRP as well and further charged VAT! I doubt if this is really going to the Government.

      2) Charging VAT on Service Charges is not good at all. Again, the restaurant must be keeping this money.

      What is good?
      Service Tax is missing in this bill. I assume that, the restaurant is not Air conditioned or heated and that’s something good in the bill. There are many frauds who charge ST without having an AC restaurant.

  16. Ambuj 01. Oct, 2016 at 4:29 pm #

    Explained Fabulously in Simple & effective manner.,

    Its pity that V r being Tax Twice/Thrice,etc. Kindly go through the LInk below
    A) https://blog.bankbazaar.com/charges-and-taxes-in-restaurants/36946/

    I have following queries:-
    1) Plz refer ‘Service Tax'(The restaurant must be air-conditioned for service tax) of “Link-A” mentioned Above
    In this context,Suppose Bar has ben constructed in such a manner that One part(Half/Some) is Air-Condtioned & Another Part(Half/Some) is not is Open Area/Pool Side/ Not Air-Conditioned and V have been served in Open Area/Pool Side/ Not Air Conditioned, than should r v liable to pay Service tax?

    2) Is percentage of VAT is dependent on Items like Beer would attract differ VAT than Wine/Mocktails/Juicy/Coke,etc ?

    Waiting in anticipation of Reply
    Regard
    Ambuj

    • Ajith Prasad Edassery 03. Oct, 2016 at 8:56 am #

      1) I doubt if any restaurant can have A/c and non-A/c areas separately billed. If the restaurant is air conditioned or heated, they just charge the ST and that’s fair, I think. For that matter, if it’s cold day and if the a/c is not switched on for practical reasons, could we ask for an exemption on ST on the bill? :)

      2) Yes, percentage of VAT for alcohol is different from that of mocktails.

  17. Jayadev 21. Oct, 2016 at 10:52 am #

    Great article!!

    When a restaurant gives a discount, how is VAT calculated?
    For example, if the food costs a total of Rs.100 and if there is a discount of Rs.10, will VAT be applicable on Rs.100 or Rs.90?

    Thanks for your help.

    • Ajith Prasad Edassery 21. Oct, 2016 at 3:52 pm #

      Hmm.. That’s a tricky question Jayadev. I would think that the tax is for what they actually charge you. i.e. for Rs.90/- as in your example.

      • Jayadev 21. Oct, 2016 at 4:37 pm #

        Can anyone confirm this?

  18. RAJASEKHAR 03. Dec, 2016 at 10:20 pm #

    Today i went to hotel….they are saying service tax is added to gross amount…and vat is calculated for the that amount for example.
    Gross amount=550
    S.T. 5.6= 30.8
    S.B. .20= 1.10
    K.K. .20= 1.10
    VAT 14.5= 84.56
    Total. = 668.00

    Sir can u plz clarify the correct amount to be paid

  19. Jayesh 26. Dec, 2016 at 3:23 pm #

    Can you please help me with the below bill:

    Total amount: 1760
    Service Charge @ 10%: 176
    Total: 1936
    VAT @5.5%: 38.7
    VAT @14.5%: 153.1
    VAT @20%: 35.2
    Service Tax @6%: 116.1
    Total: 2279

    This bill includes alcohol, food and soft drink

    • Ajith Prasad Edassery 28. Dec, 2016 at 11:44 pm #

      By reverse calculating your bill, it looks like you have consumed the following:

      Food: 960/-
      Alcohol: 640/-
      Other / Beverage: 160/-

      The 160/- rupees may be contributed by Aerated water or Soda or any imported drink? If you specify your location (Mumbai?) and the type of beverage or other items you consumed, we can conclude the calculation. Rest looks fine.

      • Jayesh 05. Jan, 2017 at 11:19 am #

        Thank you for your reply
        I had coke and I am from Bangalore

        • Ajith Prasad Edassery 16. Jan, 2017 at 9:51 am #

          Hmm… I am unaware of this 20% VAT rule. Perhaps, will check with someone in the industry.

  20. Keerthivasan 03. Jan, 2017 at 4:43 pm #

    When a discount is applied on a bill that has all the three types – Food, Alchohol and other beverages. Where will the discount be applied? We shouldn’t reduce the discount on the gross amount after adding taxes. How do that happen
    ?

  21. Nitin Chaudhary 07. Jan, 2017 at 12:48 pm #

    Food 345
    Alcohol 1650

    ST 5.6% 111.72
    SC 5% 99.75
    SBC .2% 3.99
    KKC .2% 3.99
    VAT 20% 296.80
    ST on SC 6.01
    VAT 14.5% 38.42
    VAT 5.5% 20.12

    NET 2576

    Kindly throw light on this!Seems unfair.

    • Ajith Prasad Edassery 16. Jan, 2017 at 9:49 am #

      I am yet to figure out the 20% VAT criteria. What type of beverages did you order? Is it some kind of imported stuff or in house brewed beverage?

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