Service charge imposed by restaurants and hotels come under the tax scanner

CBDT has observed that some restaurants and hotels are still compulsorily collecting service charge from customers.

On April 21, 2017, the food and consumer affairs ministry had issued guidelines which stated service charge is totally voluntary and not mandatory.

The Central Board of Direct Taxes (CBDT) has now also observed that in some cases the service charge collected was not even passed on to the staff of the establishments.

CBDT has written to all principal chief commissioners of income tax that treatment of service charge taken from customers under the income tax act should be changed.

Revenue officers have been directed to examine the under/non reporting of additional income collected as service charge.

If service charge receipts haven't been passed on to staff, establishments must be taxed. Also, establishments have to disclose service charge receipts in their total income.