Can Restaurants Levy Service Charge? Know Latest Norms

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posted on 6 months ago — updated on 1 second ago

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As per legal experts, a restaurant can add voluntary charges such as 'Staff Contribution' towards tips, which cannot exceed 10 per cent of the total bill amount; however, the restaurants cannot force customers to pay such charges.

Even as the debate over service charges in Indian restaurants remains unresolved as of June 2024, the Delhi High Court hearing on the service charge is scheduled for November 25, 2025. Legal experts said a restaurant can add voluntary charges such as ‘Staff Contribution’ towards tips, which cannot exceed 10 per cent of the total bill amount. However, the restaurants cannot force customers to pay such charges.

According to the current guidelines of the Ministry of Consumer Affairs, restaurants cannot force customer to pay service charges and any such charge must have the customer’s explicit consent.

Nidhi Singh, partner at IndiaLaw LLP, told news18.com: “A restaurant cannot ask for service charge but can add voluntary charges such as ‘Staff Contribution’ towards tips. Any ‘Staff Contribution’ shall not exceed 10 per cent of the total bill amount, excluding GST. However, the restaurants cannot force customers to pay such charge. The customer can simply refuse to pay such voluntary contribution and ask to remove from the Bill.”

Earlier, Union Commerce Minister Piyush Goyal has also said that while restaurants are free to set their menu prices, they cannot impose service charges without customer approval. “Service charge is a consumer’s choice; if they like the service, they can tip,” he stated.

Restaurant owners can increase menu prices if they wish to pay higher salaries to their staff, as there are no government-imposed price controls, Goyal has said.

The Ministry of Consumer Affairs has received numerous complaints from consumers about the wrongful imposition of service charges. In response, the ministry in 2022 held meetings with the National Restaurant Association of India (NRAI) and other stakeholders to address these concerns. Consumer organisations argue that including a service charge without consent constitutes an unfair and restrictive trade practice.

The Delhi High Court has issued a stay on the Central Consumer Protection Authority (CCPA) guidelines that banned mandatory service charges. This stay, pending further hearings, means that some restaurants might continue the practice while the legal process unfolds. The next hearing is scheduled for November 25, 2024, and the outcome will significantly impact the restaurant industry’s billing practices.