MeraNews Network, Ahmedabad: The Income Tax department has decided to tax the service charge collected from customers by restaurants as income if it is not distributed amongst the restaurant employees. The department has instructed its field officers to scan and verify the accounts of the restaurants if the amounts collected as service charge them are disclosed in the books of accounts and are disbursed amongst the employees or not. If not, it should be considered as the restaurant or hotel’s income and that they are taxed towards it.
The decision was taken after the ministry of consumer affairs had shown concern that restaurants and eateries retain the amounts collected by them as service charge from its customers instead of distributing them amongst their staff, thus enriching themselves. In some cases, this income is not disclosed in the books of accounts too.
The service charge is usually decided by the restaurants arbitrarily and is added on to the bill of the customer, despite the ministry categorically stating that anything charged beyond the prices mentioned in the menu and the applicable taxes without the customers’ consent is unfair trade practice on the part of the restaurant. The service charge is supposed to be paid in form of tips by the customer and should be completely voluntary.
English business daily Mint quoted Rahul Singh, the president of National Restaurant Association of India, “The CBDT circular strengthens the position of legit restaurant operators, who have been recognizing service charge receipts as part of their turnover and disburse it across the entire staff pool. This initiative will prevent misuse by exposing the unscrupulous.”
But restaurant owners and operators say that they are surprised by this directive and that they are planning to approach the government seeking clarity on this. They say that about 75 to 80 percent of the service charge is passed on to the staff and the remaining is spent of acquiring crockery, cutlery, and glassware, for which the tax is already paid to the government.