Liable to income tax if service charge not passed on to staff by restaurants: Tax Dept

The income tax department has asked its officers to scan the accounts of restaurants to ensure that income tax is being paid on the service charges collected by them if the same is not being passed over to the employees. It had instructed its field officers as a part of their regular assessment, to verify if there has been under-reporting of or non-disclosure of income collected as service charge. In this regard, the officials were asked to check the amounts collected as service charge and disclosure of the same in their books of accounts along with the details of the same being disbursed among the employees. This move has been taken by the department after the ministry of consumer affairs flagged the issue of restaurants arbitrarily deciding on service charges rather than giving the customers option to tip the servers and retaining the same instead of distributing it among the employees. The president of the National Restaurant Association of India has stated that the move ensures fair play within the industry and also “ strengthens the position of legit restaurant operators, who have been recognizing service charge receipts as part of their turnover and disburse it across the entire staff pool.” The ministry had stated in April that the service is associated in the supply of food by hotels and charging the customers beyond what has been mentioned in the food menu would amount to unfair trade practice.