WHAT
IS THE REAL PRICE? (3) …… RESTAURANTS
Service providers take customers for a ride by tacking on hidden fees to the advertised price. Here are some of the biggest culprits that are eating into your spending budgets.
Drip pricing, grey charges, split pricing… These are different strategies that lead to the same problem: hidden charges. To lure customers, sellers advertise only the base price. Then, at the time of payment, a host of charges are tacked on as mandatory fees. The customer usually discovers this too late, as in the case of hotel bills. In other cases, since you don’t want to spend the time and effort to start the search all over again, you just shrug, grumble, and pay up.
However, one fee at a time, this menace ends up claiming a sizeable share of your wallet—up to 50% in the case of travel, 25-40% in realty purchases, up to 133% for home deliveries, and so on. “The main issue in the service industry is hidden fees,” says Geetanjali Dutta, a lawyer who specialises in consumer cases.
Sellers are also becoming increasingly creative when it comes to squeezing a few more bucks out of you on the sly. Say hello to online convenience charges, speak-to-a-human fee, mini-bar restocking fee … Our cover story this week looks at some of the biggest culprits that are eating into your spending budget.
RESTAURANTS
Most of us know that a service tax of 12.36% is levied when you eat at a restaurant. But not all of us know that this tax is not to be charged on the total bill value. As per Section 66E of the Finance Act, 1994, the declared services shall include a service portion in an activity where food or drink is supplied in any manner. However, the trouble lies in determining a value for the service portion, which is over and above the cost of the meal. To standardise the value of such services, a new rule was inserted in the Service Tax (Determination of Value) Rules, 2006. According to this, the value of the service portion will have to be limited to 40% of the total amount charged, including any service charges, after deducting the value-added tax component (see box).
In November 2012, a notice claiming that service tax is to be paid only on the service charge component levied by restaurants went viral on social media. The fact that it came from the Delhi High Court Bar Association gave credence to it, but according to the Department of Trade and Taxes this is not true. So don’t get misled if you happen to see that notice on the Internet.
This year’s budget extended the scope of service tax to all air-conditioned restaurants and across all formats, be it home delivery, takeaway, kiosks, or self-service.
“There is no miscalculation of service tax among the organised segment of the restaurant industry, which follows the rules and regulations laid down by the government. However, no comments can be made on individual defaults and on the unorganised segment,” adds a spokesperson of the National Restaurants Association of India. Given that the unorganised segment comprises 70% of the industry, you are more likely to get conned than not. So the extra that goes from our pockets can be called the service tax fee.
Another less common hidden charge is the home delivery fee. According to NRAI, there are no rules governing home deliveries. It is decided by individual restaurants, keeping market norms and competitive pricing in view. Nonetheless, one can perhaps understand having to pay a little extra for the convenience. It’s having to pay more than the MRP for packaged products, like a soda, that really pinches. Legally, restaurants are not allowed to do that as no added services are offered. In 2009, a case was filed against Nirula’s, Delhi, by Ankit Jain for being charged `35 for a 500 ml coke with an MRP of `15. That was a 133% mark-up. Thankfully, the apex consumer court held that home delivery service cannot be interpreted on the same lines as services offered by a restaurant. So watch your home delivery bills carefully from now on.
Most of us know that a service tax of 12.36% is levied when you eat at a restaurant. But not all of us know that this tax is not to be charged on the total bill value. As per Section 66E of the Finance Act, 1994, the declared services shall include a service portion in an activity where food or drink is supplied in any manner. However, the trouble lies in determining a value for the service portion, which is over and above the cost of the meal. To standardise the value of such services, a new rule was inserted in the Service Tax (Determination of Value) Rules, 2006. According to this, the value of the service portion will have to be limited to 40% of the total amount charged, including any service charges, after deducting the value-added tax component (see box).
In November 2012, a notice claiming that service tax is to be paid only on the service charge component levied by restaurants went viral on social media. The fact that it came from the Delhi High Court Bar Association gave credence to it, but according to the Department of Trade and Taxes this is not true. So don’t get misled if you happen to see that notice on the Internet.
This year’s budget extended the scope of service tax to all air-conditioned restaurants and across all formats, be it home delivery, takeaway, kiosks, or self-service.
“There is no miscalculation of service tax among the organised segment of the restaurant industry, which follows the rules and regulations laid down by the government. However, no comments can be made on individual defaults and on the unorganised segment,” adds a spokesperson of the National Restaurants Association of India. Given that the unorganised segment comprises 70% of the industry, you are more likely to get conned than not. So the extra that goes from our pockets can be called the service tax fee.
Another less common hidden charge is the home delivery fee. According to NRAI, there are no rules governing home deliveries. It is decided by individual restaurants, keeping market norms and competitive pricing in view. Nonetheless, one can perhaps understand having to pay a little extra for the convenience. It’s having to pay more than the MRP for packaged products, like a soda, that really pinches. Legally, restaurants are not allowed to do that as no added services are offered. In 2009, a case was filed against Nirula’s, Delhi, by Ankit Jain for being charged `35 for a 500 ml coke with an MRP of `15. That was a 133% mark-up. Thankfully, the apex consumer court held that home delivery service cannot be interpreted on the same lines as services offered by a restaurant. So watch your home delivery bills carefully from now on.
SUSHMITA
CHOUDHURY AGARWAL ETW130916
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