India bans adding 'automatic' service charge to food bills

Rule issued to prevent 'unfair trade and violation of consumer rights'

Restaurants in India will no longer be allowed to impose service charges 'automatically or by default' on food bills. AFP

India has banned hotels and restaurants from imposing service charges “automatically or by default” on food bills and issued a warning that violators will face legal action.

Restaurants and hotels in the country generally add a 10 per cent service charge to the total bill, much to the frustration of consumers, who already pay a 5 per cent tax.

While the practice of giving a service charge, known as tipping, is popular in the West, it is not mandatory in India under the consumer laws but people are often forced to pay it in the guise of a service tax.

The Central Consumer Protection Authority — the leading body that safeguards consumer rights — said the rule was issued to prevent the “unfair trade and violation of consumer rights”.

Nidhi Khare, CCPA chief commissioner, said: “Pricing of the product covers both the goods and services component. There is no restriction on hotels or restaurants to set the prices at which they want to offer food or beverages to consumers.

“Thus, placing an order involves consent to pay the prices of food items displayed on the menu along with applicable taxes. Charging anything other than the said amount would amount to unfair trade practices under the [Consumer Protection] Act."

Guidelines said a consumer can ask the hotel or restaurant to remove the charges or file a complaint either on a portal or by email to the authorities.

The decision came a month after federal Commerce and Consumer Affairs Minister Piyush Goyal said restaurants and hotels can “raise prices but cannot levy service charges without the customer’s explicit consent”.

'A tip should always depend on the consumer'

Consumers who were pleased with the guidelines said they now had the freedom to choose to pay a tip should they deem it appropriate.

“Service charge is like a tip and a tip should always depend upon the consumer and not the service staff or restaurant," Ankit Sharma, an entrepreneur in Delhi, told The National. "You can't force anyone for a tip and call it restaurant policy. I am in the favour of the law."

For years, restaurants indirectly coerced consumers to pay the service charge, which was added to the total bill, and refused to remove it.

There are several restaurants and hotels in capital Delhi that put up posters advertising a mandatory service charge at the entrance.

Some in the restaurant industry say new service charge rules will affect the livelihood of staff. Photo: Klaus Vedfelt

But restaurant and hotel industry insiders say service charges were meant for the benefit of the consumers and the guidelines will affect the livelihood of waiting staff.

Gurbaxish Singh Kohli, vice president of the Federation of Hotel and Restaurant Associations of India, said introducing a service charge was not illegal and it was for "the benefit of the staff working in the kitchen, from the waiter to the dishwasher, who have served the consumer directly or indirectly".

“We don’t coerce the consumer to pay,” he said.

Anil Kumar, manager of District 5 restaurant in Haryana’s Panchkula, said the decision was taken against the interest of waiting staff.

"Service charges help waiters and servers to make extra money," Mr Kumar told The National. "Although we stopped taking service charges a while ago, people gave tips. Now with the guideline, the scope has ended as guests won't feel the need to tip us."