Indian government wants to convince restaurants to stop levying service charge

The service charge is like a ‘gratuity or a tip’, which cannot be forced upon the consumers and the government is convincing restaurants to stop levying service charge, Consumer Affairs Secretary Rohit Kumar Singh said.

Asked about an update on the matter, Singh said, “So, there is no tussle here. We are just fighting for the rights of the consumers, the consumers who go and eat at restaurants. We are saying, that we have the firm belief that a service charge is like a gratuity or a tip. And it cannot be forced upon you, only when you are happy with the service do you pay the tip.”

Singh noted that restaurants should not "disguise the charges" and fool consumers.

“... all that argument about, you know, paying the waiters out of that kitty is not a logical argument because we are saying, OK, if you want to do that, you increase the price on the menu, but don't disguise the charges, don't fool the consumer. That's the fundamental principle,” he said.

He said that half the customers don't understand what the service charge actually is.

“When the bill comes, it says taxes, of course, everybody has to pay and then it says 'SC' or the service charge, half the people don't know what service charge is. And you're there with your family and guests, your boyfriend or girlfriend and now you don't want to fight there in front of your esteemed guest. And you know that is being forced upon you,” he asserted.

Singh said different restaurants have different percentages of service charges, which is not acceptable.

“Somebody will charge 5, somebody will say 10, somebody will say 12. So, this is not done. You know you have to tell, just by putting it in the window that this restaurant charges, service charge, it does not... It's like saying for entering a mall you will be charged ₹50... Any charge has to be justified,” Singh said.

He shared that the matter is currently in the court and is expected to be sorted soon, “hopefully in favour of the consumer of this country”.

In September 2023, the Delhi High Court, in an interim order, asked members of the Federation of Hotel and Restaurant Association of India (FHRAI) to replace the term ‘service charge’ with ‘staff contribution’. It further ordered that the amount charged from consumers should not exceed 10% of the total bill.

While hearing the case, Justice Pratibha Singh of the Delhi HC said that FHRAI-associated restaurants and hotels will have to specify in the menu in bold letters that tips need not be given after staff contribution is paid by the consumers.

“... the members of FHRAI shall use the terminology ‘staff contribution’ for the amount of service charge that they are currently charging,” the high court ordered.

It added that the amount should not be over 10% of the total bill amount, excluding GST.