Service charge

Hotel and restaurant owners react to new rule on collecting service charges on consumer bills

On July 4, the Central Consumer Protection Authority (CCPA) issued guidelines to prevent unfair commercial practices and the violation of consumer rights with regard to the imposition of service charges. Per the guidelines, hotels and restaurants cannot charge service charges automatically or by default on food bills. According to CCPA guidelines, “No hotel or restaurant should add a service charge automatically or by default to the bill.”

Additionally, the guidelines also mention that a consumer can file a complaint against the hotel and restaurant when faced with such charges by dialing 1915. A complaint can also be sent to the CCPA by email at com -ccpa@nic.in. Since the publication of the guidelines, consumers and owners have been divided on the same subject. While many have accepted the guidelines, some have yet to accept the change.

What is the service charge?

A service charge is an additional service provided by a restaurant with a property. When you visit a restaurant, they ask you to either dine in or take out. In a restaurant, there is an additional service charge due to the additional cost to the establishment. “Unfortunately, consumers in India believe that service charges are not legal or should not be levied. This is because the restaurant should only be paid for the dish,” says Amrut Mehta, director of Little Italy Group.

Challenge the ban

Days after the CCPA issued the guidelines, the National Restaurant Association of India challenged the decision. Charging a service fee is not illegal, the Association said. It is a question of restoration policy and neither the government nor the authority can intervene in the decision.

Tipping culture

Although service charges are prohibited under the guidelines, the list also includes a ban on tipping culture. For years, Indians have complained about tips in restaurants and hotels.

Amrut points out that tipping culture is not so widespread in India. “In India there is no tipping culture, so it’s even worse for people in this industry. If an establishment clearly displays it on their menu saying that if you come here we have a service charge, that’s true. Our philosophy has always been to provide good service and a good experience so that a customer does not need to question service fees and pays them with pleasure. But respecting the decision of the government to give the service charge, we will follow the same soon,” adds Amrut.

On the other hand, Venkatesan Thangaiah, owner of The Eating Story, is of the opinion that the new rule will not have much impact. “Service charges are mainly applied in high-end restaurants, as it helps them to provide good service to their customers. Many people agree to pay the fees. The new rule will not affect restaurants or hotels,” says Venkatesan.

He further adds that initially tipping was an encouragement for the staff, but that has changed. “Staff members get paid and they don’t get discouraged if they don’t get a tip. In fact, many places have a common tip box and they split that money among staff members,” he adds.

While owners may have found a way to operate after the guidelines, consumers have their say too. “I think it’s both good and bad. It is certainly not fair to charge customers additional hidden fees if their services are not up to par. If the place has good services, we don’t mind paying. I’m ok with paying the five star service fee and good service providers. Also, it shouldn’t affect the food prices they offer. Many restaurants can increase their food prices or the prices of their stays in hotels, this will not help the consumer. For the tip, it is always voluntary by the customer. No one is obligated to tip the waiter. However, we should learn to tip for service; it’s being courteous,” shares IT professional Pawan Balwant.

Service charge against service charge

Service tax is a tax levied by the government and is set in each Indian state at 14%.

On the other hand, service charge is an additional fee charged by the restaurant which varies from restaurant to restaurant. This is a way to cover the cost of “tipping”, as many customers in India may not tip. This amounts to paying delivery fees to food delivery apps or convenience fees to various service providers.

The service tax was combined with the GST after the passage of the Goods and Services Tax Act in Parliament on March 29, 2017. The service tax follows certain guidelines set by the government. Contrary to this, the service charge is not bound by any government guidelines.

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