India’s income tax officials may penalise restaurants who fail to disclose service charge to staff

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• India’s income tax department is reportedly going to examine the books of all the restaurants and hotels that do not disclose additional income through the service charge they bill to customers
  
• Service charge imposed by eateries on consumers and not shared with staff will be liable for income tax.
  
• Most of the restaurants do not even ask consumers whether they want to pay service charge or share the fact that it is optional.

Many restaurants and hotels in India have been earning an additional income on behalf of their serving staff through the optional ‘service charge’ category billed to customers. Now, India’s income tax authorities want to make sure that establishments that don’t disclose that extra income are penalised.

The Central Board of Direct Taxes has instructed its officers to investigate the books of all the restaurants that are collecting a service charge from customers. The restaurants will have to pay heavy taxes for under reporting or non reporting of service charge receipts Indian Express reported.

In case the restaurant is imposing a service charge they will have to fully disclose the receipt in their books as a part of their turnover. The CBDT will levy a heavy income tax in case such entities fail to show the additional income.

The decision came after India’s Ministry of Consumer Affairs found that some hotels and restaurants were misusing the service charge to fill their pockets. They were neither sharing the income meant as gratuity for their staff nor were they disclosing it in their books accurately. In fact, many restaurants have decided a rate to paid by customers without even taking their consent in advance, The Indian Express reported.

Last year, service charge has been made optional for customers and restaurants are required to inform their patrons of the same.