In India, taxes are divided into two main types Direct and Indirect. While direct taxes are paid directly to the Government, indirect taxes are levied of various goods and services. Irrespective of the categorical division of two main types of taxes, the taxation system in India is considered as complicate. To deal with this matter, the Government has introduced Goods and Services Tax, commonly known as GST.

What is GST?

Goods and Services Tax or GST is a single tax that will replace indirect taxes levied by state and central government on various products and services. The main objective of introducing GST is to provide a single and streamlined process of charging taxes, which was otherwise complicated with the inclusion of different types of taxes. This tax is implemented at each step of value creation, right from the manufacturer to wholesaler to retailer to the final customer.

Although the implementation of GST has simplified the taxation system of the country to a great extent, there are still a few confusions. One of the most common confusion among individuals is about service tax charged by the restaurants. Let us understand what GST law states about the same.

Difference between Service tax and Service charge:

Service tax:

The Government of India has levied the services taxes on the services rendered by restaurants. Service tax is one of many taxes that are now replaced by GST.

Service charge:

This is charged by restaurants for the services they provide to you. Under present tax laws, there are no specific guidelines on the limitation of service charge by restaurants. This is the amount that directly goes to the restaurant.

According to the Ministry of Consumer Affairs, Food and Public Distribution, the voluntary amount levied by the restaurant that the customers pay at their discretion is known as the Service Charge. Service Tax, on the other hand, is payable to the Government.

However, many customers are confusing service charge with service tax and questioning the restaurants on why they need to pay this extra amount after the implementation of GST. Some restaurants have made it compulsory for customers to pay the service charge. This is increasing the confusion among customers regarding the objective of GST, although the restaurateurs have made it clear that the service charge is not about increasing the profits, but for the betterment of the staff.

So, as per law, Service Tax has been phased out by GST and customers are not supposed to pay it. However, the Service Charge is still applicable.


The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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