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Wednesday, February 21, 2024

What is the GST on Service Charge?


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What is the latest tax reform that you remember? Without a doubt, to everyone’s mind – GST would be the first one to pop. Ever since Independence, GST has been known to be one of the biggest tax reforms, and it is not just recently. It is also known as one reform that has brought uniformity to the taxation structure and eliminated the cascading of taxes that were levied in the past. The GST council has a meeting from time to time in order to revise the rates of GST for different products and services; among this also comes service charge.

What is the Meaning of Service Charge?

Services charges are the fee that is collected to pay for the services associated with the purchase of primary products and services. Usually, the charges are applied at the time of the transaction, and a service charge is collected by various sectors, including banking, tourism, and restaurants.

The charges that are collected would cover the administration or the processing costs, and they are charged directly by the company. Now, you need to remember these charges are different from the tip that is given to the service deliverer.

Services Charges Explained

Let’s consider an example, shall we?

When adding the initial price of a vehicle at the time of purchase, a showroom would charge a service charge like the re-delivery inspection charges, fitting charges, swiping of the card charges, and more.

These service charges can also be called the service fee. They are called different names in different sectors and operations, but they all mean the same. Now, let’s start talking about the GST on restaurant food.

Why specifically talk about restaurants? For starters, it has been the talk of the town, and apart from that, there are two other industries that we will understand in vague before we can talk about the restaurants.

Banking Sector – The banking sector charges different charges, and they are typically set at a flat or a fixed rate. When you plan on opening a bank account with a check deposit, the bank will charge you a monthly fee which is called the maintenance fee. At the end of the month, the fee is debited from the account, and the bank will also charge service charges while the use of the ATM takes place or when a wire transfer has been initiated.

Airlines Sector – The airlines will also collect different service charges, and they could be checked or oversized baggage fees, cancellation fees, early seat selection charges, and much more.

Now, let’s get going to discuss the service charges in restaurants.

What is the Service Charge in a Restaurant?

The service charge is added to the entire bill amount that needs to be paid by the customer after they eat at a restaurant. It is a levy that is used by the restaurants to pay their staff and the workers, and it is like an incentive to them too.

A service charge is a payment for the services that are rendered, and it is not imposed by the government.

Typically, the range of 5% to 15% is a service charge that is added to the total bill amount, and it could be refused by the client.

However, the restaurants have made it like an obligatory tip that a customer has to pay (which is why it is the talk of the town). Now, that is a different topic to talk about.

Service tax is a statutory levy, and it is imposed under the GST law.

It is levied on the service provider, but it will ultimately be borne by the customer who utilizes the service. Based on a recent amendment, the service tax is levied only if the restaurant is air-conditioned.

Earlier, the service tax would be levied if the restaurant also had a bar, but that has changed now.

What are the GST and other Service Charges on a Bill?

Here are the charges that will be levied on the total bill amount:

  1. a) The service charge
  2. b) The 5% GST on food services that comprise a takeaway.
  3. c) An 18% GST charge when the restaurant is located within a hotel and the room rate is more than Rs. 7,500.
  4. d) Service tax.

Note: GST service tax is mandatory, which is levied by the law, but service charges are not.

Is Service Tax Different from Service Charge?

The answer to this is a big yes. A lot of people actually confuse the two of them together, and this can lead to misunderstanding the whole concept. As mentioned, there are two different charges and that is the service charge and the service tax.

What is Service Charge?

It is the charge that is levied by the restaurants on the bills, and the same amount will be distributed between the staff and the waiters that work in the restaurant, and it could also be understood as a tip.

What is Service Tax?

It is the indirect tax that is levied by the central government, and it is collected in the manner prescribed.


If there is one thing that is clear through this post, the service charges are a benefit to the staff, and people have been making it a conscious effort. Therefore, the service charges will be charged by the institution itself, but service taxes are from the government; just make sure you do not confuse the two.

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