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Eateries may soon have to pay tax on service charge
September, 13th 2017

The Union consumer affairs ministry has asked the Central Board of Direct Taxes (CBDT) to ask officials to take into account service charge collection by hotels and eateries while assessing their tax liabilities. The move comes in the wake of reports that many eateries are still collecting the charge.

In a series of tweets, consumer affairs minister Ram Vilas Paswan said, "In view of seriousness of issue, Deptt. of Consumer Affairs has written to CBDT to consider inclusion of service charge while assessing tax."

In another tweet, the minister said, "Complaints against those insisting (sic) payment of service charge compulsorily are being received through NCH (National Consumer Helpline) and are being reported in media."

Ministry sources said there were reports that many restaurants had displayed at their entry that they collected 10% service charge. "It's like making it a pre-condition that every customer has to pay the charge. We have already clarified this cannot be imposed on customers and it's an unfair trade practice," an official said.

The official added that eateries collecting service charge must come out with a white paper to prove they were distributing the collected amount to the staff. If not, the collection should be taken into account as part of their income, the official said.

"Who knows whether they are showing this amount in their book of accounts?" asked the official.

On April 21, the consumer affairs ministry had invoked its mandate under the Consumer Protection Act and warned eateries that charging customers for anything other than food and beverages "would amount to an unfair trade practice".

 

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