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Lok Sabha TV- Public Forum: Why to Pay Service Charge?



Lok Sabha TV- Public Forum: Why to Pay Service Charge?


Hotels and restaurants have been advised to inform that the service charge is discretionary, voluntary and a consumer dissatisfied with the services can have it waived off. Department of Consumer Affairs said that the service charge billed in the total amount along with taxes is only optional and the customer has the discretion to pay it according to his/her will. It has asked the State governments to sensitize the companies, hotels and restaurants in the states regarding the stated provision of the Consumer Protection Act of 1986. The move came in to redress the grievances put in by consumers who had complained about hotels and restaurants extracting money amounting from 5 to 20 percent in the name of service charge which they are forced to pay irrespective of the kind of service provided.

Is it a good decision?

This is a good decision from the Government’s side which was being talked about for last ten years. The restaurant owners brought service charge quite sheepishly in the bills and as usual generally consumers don’t look at the details of the bills. But the problem was that it was being charged arbitrarily. There were many bearers or waiters who said that they only got the tip into their pockets from the consumers and not the share form service charge. Whatever service charge a consumer has to pay should be statutory if it is required to be paid. But if this is left to the consumer, then it is the consumer who should decide what amount has to be paid based on his/her economic capabilities.

Should service charge be a matter of choice?

Many restaurants leave a kitty and what is collected is left into a box. At the end of the day, it is collected and deposited. At the end of the month, it is distributed to those at the backend. As far as empowering of consumers is concerned, the idea seems to be flawed. First of all if it is discretionary, it should not have been printed on the bill itself. The moment it is printed, the hotel owners project it as something legal. It is assumed by most of the people that the service charge is going to the Government’s kitty but the fact is it is being distributed among restaurant staff. If the discretion of consumers has to be considered valid, there should also be some legalities to it without which this cannot prove to be a win-win situation for either consumers or lower staffs in hotel industry.

Service charge is not a tax. It is not mandatory. It is not known whether the people for whom service charge is being paid reach them or not. In terms of our law today, service charge is not legal. It is an unfair trade practice. Though the Government has come out with a statement, but further clarification is needed. As far as the impact on people working in hospitality industry and their pay is concerned, rates can be increased at the menu level itself to ensure them a better pay. At present, there is VAT, service tax and service charge being paid by the customer. If there is a bill of Rs.100, service tax is paid over Rs.40 and 14% of this Rs.40 is the service charge that is Rs.5.60 approximately. This clarity is also not there among many people and they pay a tip even after paying service charge. There is no agency to see accountability, transparency and uniformity in this regard.

Overseas, there is single point taxation which is not there in India at present and varies from state to state because local trade is a state subject. In US, it is for the consumer to add a tip to the bill. State governments have the right to charge or levy any tax they want to in India. This will come to an end once the GST is rolled out. How State Governments react to the advisory brought in by the Central Government and how promptly they ensure that these issues are resolved is significant. Till now, there have been lack of stringent laws which the Government is planning to come up with because even today despite of the laws and all kinds of provisions, consumers are not heard to the extent they should be.


The work is going on towards a strong consumer awareness and empowerment in the country but there is a long way to go. Implementation part of consumer protection has to be given its due share of importance.