(This article was first published in The Economic Times.)

Eating out can be an expensive affair, considering all the extra charges and taxes that have to be paid, in addition to the cost of what you order. While you can’t do anything about the taxes, according to a recent announcement by the Department of Consumer Affairs, the ‘service charges’, which restaurants include in addition to taxes, are not mandatory. That is, you can choose not to pay them, if you are not satisfied with the service you receive.

Many restaurants have reacted to this announcement by affirming that service charge is mandatory. The National Restaurants Association of India has also issued a statement implying that customers are free to not eat at a particular restaurant if they don’t wish to pay the service charge.

Here’s a break-down of restaurant bills to help you understand what you’re paying for, and avoid being overcharged.

Service charge

Service charge is not a tax, and therefore, restaurants are not legally bound to enforce it. The amount of service charge a restaurant levies is entirely at its own discretion. Typically, 10% is charged, and it is mentioned on the menu.

Service tax

The service tax rate is 14%, but since restaurants provide both goods and services, the Central Government provides an abatement of 60% on the service tax to be levied by them. This means that the service tax levied by a restaurant comes down to 40% of the actual rate, which is 5.6%. If you see a service tax of 6% or 6.1% on your bill, it is because the restaurant has clubbed service tax with Swachh Bharat Cess and Krishi Kalyan Cess.

Swachh Bharat Cess and Krishi Kalyan Cess

The Swachh Bharat Cess and Krishi Kalyan Cess are recent introductions that are applicable to taxable services. Their rate is 0.5%, but in the case of restaurants, like service tax, they apply to only 40% of the bill amount. Hence, their effective rate turns out to be 0.2% of your restaurant bill.

Value Added Tax

VAT rates vary across states, and can also vary depending on what you order. It is important to remember that the VAT rate for food and non-alcoholic beverages is not the same as that for liquor.

A restaurant can also choose to levy service tax on the service charge. “Service charge forms a part of the service component, so a restaurant can levy service tax on it. But VAT can be charged only on food and beverages,” explains Archit Gupta, Founder and CEO of ClearTax.com. Make sure that VAT on service charge is not added to your bill by the restaurant.

Decoding your restaurant bill

Keep these details of taxes and charges in mind when paying.

restaurant bill charges