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Do you know about FAT Tax on hotel food?

This is a very common question I encounter from many people. When you visit a restaurant, the menu card mentions the item wise rate and * mark at the end – Taxes extra! The cost of the food at fine dining (air conditioned) restaurants itself is taxing one’s pocket and on top of it, one has to cough up taxes. What are these taxes? How much one has to pay? This article may help to get an idea.


A typical fine dining restaurant bill has the following –

  • Item-wise rate, say Rs.2000
  • Service charges, say 10% – Rs.200 (this is the amount for the waiters serving the food to your table. Don’t you think that it is ridiculous? It is their restaurant, it is called as ‘fine dining’, they make us to sit and then they serve food. Is it not part of their service?)
  • VAT – (Value Added Tax) – this is levied by State Government. Food is a commodity, so the sale of food attracts Sales Tax (VAT). VAT at Karnataka  is 14.5% on the value of the food.
  • Service Tax – this is levied by Central government. (See who all wants to have a pie in your food. Restaurants charge service charges, state government levies VAT and central government charges service tax. Common Man, why can’t you cook at home and eat!!!).

The customer is paying VAT on food and again why is he asked to pay Service tax? The government says “they are not raw vegetables or grains; they are cooking before serving to your table. Cooking means service, labour is involved. Hence, pay Service Tax.  (What a logic Sirji!).


Since the government can’t bifurcate the quantum of food items and labour in a dish, they assumed that 60% of the food value goes to products (like vegetables) and 40% goes to labor (cooks time and effort). So, one has to pay 12.36% of service tax on 40% of the bill amount. In the above case

  • The bill amount is Rs.2000
  • The service charges at 10% Rs.200
  • Sub -Total value of the bill Rs.2200
  • VAT on Rs.2200 at 14.5% Rs.319
  • Sub – total of the bill Rs.2519
  • Service Tax at 12.36% on 40% of 2200, i.e., Rs.108 (the net effective rate of service tax is 4.94% i.e., 40% of 12.36%)
  • Total bill value Rs.2627


So, going by the logic, one has to pay VAT on 60% of the bill. Isn’t it? But State Government says ‘VAT on total food bill’.


Our expectation from this government – Hello new government, we understand all your grand plans, but these minor issues which are affecting the common man in his day-to-day life can be corrected without requiring big-bang reforms.


We, the citizens feel that the government is unreasonable; they are charging VAT on 100% and Service Tax on 40% of the food (double taxation).


Lawmakers, can you correct these anomalies? 


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About CA Prasad Chartered Accountant

CA Prasad Chartered Accountant
CA Prasad is a practicing Chartered Accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]