Service charge

What is GST on service charges?

What is the last tax reform you remember? Undoubtedly, in everyone’s mind, the GST would be the first to appear. Since independence, the GST has been known to be one of the greatest tax reforms, and it’s not that recent. It is also known as a reform that standardized the tax structure and eliminated the cascade of taxes that were levied in the past. The GST Council meets from time to time to review GST rates for different goods and services; among these also come the service charges.

What is the meaning of the service charge?

Service fees are fees charged to pay for services associated with the purchase of core products and services. Usually, fees are applied at the time of the transaction and service charges are levied by various industries including banking, tourism and catering.

The fees collected would cover administration or processing costs, and they are billed directly by the company. Now, you must remember that this fee is different from the tip given to the service provider.

Service fees explained

Let’s take an example, shall we?

When adding the original price of a vehicle at the time of purchase, a showroom would charge service fees such as re-delivery inspection fees, fitting fees, sweeping fees map, etc.

These service charges may also be referred to as the service charge. They have different names in different sectors and operations, but they all mean the same thing. Now let’s talk about the GST on restaurant food.

Why talk specifically about restaurants? For starters, it’s been the talk of the town, and aside from that, there are two other industries we’ll vaguely understand before we can talk about restaurants.

Banking industry – The banking industry charges different fees, and they are usually set at a flat or fixed rate. When you plan to open a bank account with a check deposit, the bank will charge you a monthly fee called a maintenance fee. At the end of the month, the fee is debited from the account and the bank will also charge a service fee while using the ATM or when a wire transfer has been initiated.

Airline sector – Airlines will also collect different service fees, and they could be checked or oversized baggage fees, cancellation fees, early seat selection fees, and much more.

Now let’s talk about restaurant service charges.

What is the service charge in a restaurant?

The service charge is added to the total amount of the bill which must be paid by the customer after eating at the restaurant. It is a levy that is used by restaurants to pay their staff and workers, and it is also a kind of incentive for them.

A service charge is a payment for services that are rendered, and it is not imposed by the government.

Generally, the range of 5% to 15% corresponds to a service charge which is added to the total amount of the invoice and which can be refused by the customer.

However, restaurants have made it a mandatory tip that a customer must pay (that’s why it’s called the town). Now, that’s a different topic to talk about.

Service tax is a legal levy, and it is imposed under the GST Act.

It is levied on the service provider, but it will ultimately be borne by the customer who uses the service. Based on a recent amendment, service tax is only charged if the restaurant is air-conditioned.

Previously the service charge was levied if the restaurant also had a bar, but this has changed now.

What are GST and other service charges on an invoice?

Here are the fees that will be deducted from the total amount of the invoice:

  1. a) Service fees
  2. b) The 5% GST on food services that include a take-out meal.
  3. c) A GST charge of 18% when the restaurant is located in a hotel and the room rate is above Rs. 7,500.
  4. d) Service tax.

To note: The GST service charge is mandatory, it is levied by law, but the service charge is not.

Is the service tax different from the resort fee?

The answer to that is a resounding yes. Many people confuse the two together, which can lead to a misunderstanding of the concept as a whole. As mentioned, there are two different charges, namely service charge and service tax.

What is the service charge?

This is the charge that is taken by restaurants from the bills, and the same amount will be split between the staff and waiters who work in the restaurant, and this could also be understood as a tip.

What is the service tax?

It is the indirect tax which is levied by the central government and collected in the prescribed manner.


If there’s one thing that’s clear from this article, service fees are a staff perk, and people make a conscious effort to do so. Therefore, the service charge will be charged by the institution itself, but the service charge comes from the government; just make sure you don’t confuse the two.