Govt gets tough on hotels over service charge

The Income Tax department planning to get tough on hotels and restaurants who mandatorily take service charges from consumers and pocket it, instead of spending on their staff.

The IT Department has asked them to pay income tax on such amount if they do not find a way in their bill books.

The department has asked its field officers to keep a tight vigil on such restaurants or hotels which charge service tax from their customers on a mandatory basis even after a directive from the consumer affairs ministry that service charge is purely optional and voluntary.

Last year, Consumer Affairs Minister Ramvilas Paswan had made it clear that service charge on restaurant and hotel bills was totally voluntary and based on customers' discretion.

The minister had, however, restricted this directive to mere a tweet as a result of which very few hotels treated that seriously.

The differences between service tax and service charge is that the former is a government levy and is fixed in every state of India at 14%, while the latter is an extra cost charged by the restaurants or hotels which varies. It, thus, becomes a forced tip.

Officially, only a restaurant which is centrally air-conditioned are eligible to levy a service tax on the customers. However, the rule is not followed strictly and certain restaurants which have no AC facility too levy such a tax.

Service tax is recovered by the government whereas the service charge goes directly to the restaurant.