Service charge

Service Charges in Restaurants: Everything You Need to Know About the Ongoing Debate

After two long years of the pandemic, eating out has become a much-loved experience. The wait is finally over to visit our favorite restaurants for a fresh meal straight from the kitchen to our plates. Recently, however, meals have proven to be extremely expensive for diners. The aspect of service charges levied by restaurants has recently come under intense scrutiny. The Department of Consumer Affairs pointed out that restaurants levy a service charge as a default billing option, although it is entirely voluntary and its collection is not mandated by law. The National Restaurant Association of India (NRAI), however, had a different opinion on this matter. Read on to learn all about this ongoing debate.

Can restaurants levy a service charge? What the ministry says

Secretary of the Ministry of Consumer Affairs, Food and Public Distribution, Rohit Kumar Singh, wrote a letter to the NRAI chairman, citing consumer complaints on the National Consumer Helpline (NCH). The ministry has called a meeting on June 2, 2022 to discuss this matter with the NRAI. The ministry says almost all restaurants charge a 5-15% service charge and have virtually made it mandatory. This is different from the Goods and Services Tax or GST which is collected by the government and is more like a tip. This default billing option is not required by law and is entirely at the restaurant’s discretion. However, restaurants do not disclose that these fees are voluntary and collect service fees from most consumers unless they specifically request that they be waived.

Thus, it is the consumer’s responsibility to be informed and aware, and to refuse to pay the charges in the event of poor service. In some cases, restaurants even resort to harassing customers if they don’t pay the service charge. A service charge is also levied in the form of other fees or charges at some establishments. In addition, the distribution of service charges among restaurant staff is unclear according to the Ministry. All of these issues will be discussed at the June 2 meeting, according to reports.

(Also read: What is the difference between service tax and service charge?)

“It’s a matter of restaurant policy,” says the National Restaurant Association of India (NRAI)

The NRAI responded to the letter in a statement on Tuesday, May 24, 2022. They said this issue was also raised in 2016-17 and the NRAI provided its response to the government. “There is nothing new that was communicated by the ministry in its letter for the June 2 meeting,” the statement read.

According to the NRAI, the service charge levied is a restaurant policy that the establishment can decide on its own. “Whether a restaurant levies a service charge is a matter of individual policy to decide whether or not to charge it. There is no illegality in levying such a fee,” they said.

They further stated that the consumer is well informed about the amount of the service charge before placing their order. “Information regarding the amount of service charge is mentioned/displayed by restaurants on their menu cards and otherwise also displayed at the premises, so that customers are well aware of such charge before availing the services. Once that the customer is informed of these charges in advance and then decides to place the order, this becomes an agreement between the parties and is not an unfair trade practice. GST is also paid on said charge to the government,” a said the NRAI.

Twitter reacts to service fee debate ahead of June 2 meeting

A number of Twitter users also shared their reactions to the ongoing debate. While some felt it was a justified accusation, others begged to disagree.

Take a look at the reactions:

The final decision on the service fee will be made shortly at the June 2 meeting. What do you think of this debate over service charges? Should restaurants levy this charge or should it be left to the consumer? Let us know your thoughts in the comments below.