Give service charges to staff or Pay I-T

New Delhi: Restaurants and hotel, who are not passing on ‘service charges’ received from customers to workers, will have to pay income tax on it, the tax department said.

The CBDT has asked its field officers to check the book of the hotels and restaurants that are currently engaged in this practice of collecting ‘service charges’ from customers apart from food and beverages in their bills.

The move comes after the ministry of consumer affairs had said that some hotels and restaurants are collecting service charge from customers in a compulsory manner, which is in contravention with the guidelines issued by the ministry.

The ministry also said that there is “every likelihood” that the service charge amount collected is not even distributed among staff and workers of the hotels and restaurants.

In April last year, the Ministry of Consumer Affairs had issued a guideline on fair trade practices saying payment of service charge by customer to hotel or restaurant is optional.

The guidelines said that the bill presented to the customer may clearly display that service charge is voluntary and the service charge column of the bill may be left blank for the customers to fill up before making payment.

Infact few years back the finance ministry was forced to clarify that service charge imposed is different from service tax.