Service charge, Service tax and VAT in restaurants

So I guess, we all know what the deal is here. Especially, if someone is a foodie like me ❤ All of us who regularly go to food joints and restaurants to have some yummy food have an idea about the extra charges that are applied to the total bill apart from the actual food charges. Well, we got to know this, don’t we? I am sure nobody here would like an embarrassing situation of having less cash or credit on hand 😉

Apart from the issue of being ready for the expenses, there is also the concern of restaurants cheating us due to our inadequate knowledge. We as customers don’t actually sit down to calculate the extra charges, in an effort to avoid an unpleasant situation, but having basic knowledge about it ensures that nobody can cheat the daylights out of you, that’s for sure.

The real reason why I became interested in this topic was however different! Since we are students, my friends and I usually contribute equally while eating out or in rare cases, we pay in accordance to who eats what. So naturally you can understand it’s quite a headache to calculate everyone’s share in the second case, specially where taxes are involved!

So here is the bill which really gave my grey cells a run for their money:

 

Okay I know what you guys are thinking. Why not just divide the bill in two parts, young lady? Why go to such lengths for the trouble of calculating? See, the difficulty here is that I actually had one Drinks X and two Drinks Y. Hey, you can’t blame a girl for being thirsty, can you? 😛 So obviously my share was so much more than my friend.

Therefore , I had to understand the basic structure of the bill in order to calculate my share. So here goes!

Okay so there are basically four types of charges and taxes which are levied:

• Food Charges
• Service charges
• Service tax
• Value added tax

FOOD CHARGES:

These are the actual charges of the food and drinks that we have ordered. These are the prices that are indicated on the menu. eg in this case the food charge of the dish is Rs 275.

SERVICE CHARGES:

These are the charges that we have to pay the restaurant for its services. There is no tax guidelines for it. Basically it can be considered equivalent to giving tips to the waiter. It’s usually below 10%. An important thing is that these charges should be mentioned on the menu, otherwise you can question their inclusion in the bill.

So don’t feel obligated to give further tips to the waiter if you have already paid the service charge. No fun in paying double!

SERVICE TAX:

Service tax is the tax levied by the government on the services rendered by restaurants. Since it’s difficult to ascertain taxes on services rendered based on the amount of food we have ordered, hence there is an abatement of about 60% on the tax. Hence the total tax is 12.36% which is levied on 40% of bill which includes your food, drink and the service charge. For shortcut, 12.36% x 40% = 4.944% is what is usually denoted in the bill as service tax. This is same in all states. The restaurant must be air-conditioned for service tax.

VALUE ADDED TAX:

This is a form of consumption tax which is state specific. Can be low as 5% or as high as 20%. Additionally, it’s different for food and drinks. For the state of Delhi, it is 12.50% for food and 20% for drinks.

Well there, I hope this post will have explained atleast some doubts which you might have regarding this topic!

How to calculate maturity amount on a Recurring Deposit

Nowadays, managing our finances ourselves is a task everyone should be familiar with. It gives us a huge advantage if we are able to calculate for ourselves how much we earn, how much tax we pay, what interest do we earn by depositing money in banks, is it really profitable or are we just incurring losses.

Well this post is just our foray into the world of Finance.

How I got enticed by this need to understand my financial matters, or how I started to get interested in savings even though teenagers are infamous for their spending habits is matter for another discussion.  Long story short, I got interested in a Recurring Deposit Scheme in Punjab National Bank which was offering 9% interest. A Recurring Deposit is a special type of term deposit which allows people to deposit a fixed sum every month for a specified period of time and earn interest, normally at higher rates than which are available for Savings Deposit( currently 4% for majority of Indian banks).

So I got excited and quickly calculated the maturity amount for a Recurring deposit of Rs 500 for one year. Using the formula given below for compound interest, I assumed that the bank was giving me interest of 9% per annum with the interest being compounded annually and proceeded with the calculations as follows:

                                              A = P(1+r)^t

where                        A= Amount received at the end of specified period                                              P= Principal amount invested (Rs 6000 in this case)                                        r = Rate of interest in decimal(0.09 in this case)                                                                     t = Time expressed in year ( 1 in this case)

Using this formula, I calculated my maturity amount to be Rs 6540. Rs 540 as interest on an investment of Rs 6000(Rs 500 each month for 12 months) was quite a nice amount, I thought happily.  So then, I quickly went to the bank and completed all the formalities.

However, upon receiving my passbook I was dismayed to see that my maturity amount was only Rs 6298!! Huh, what is this? What did I calculate wrong?

Determined to find out where did I go wrong, I now started to google my doubt. There were online calculators for calculating your maturity amount, but there was nothing specific about HOW it was calculated. Somewhere, I managed to find that the banks calculate their interest on a quarterly basis.

MISTAKE #1 : My assumption that the interest was compounded on a yearly basis

So automatically my formula was wrong. The actual formula which I should have used was as follows :

A = P(1+r/n)^nt

where n is the number of times the interest is compounded each year( 4 in this case          as it was being compounded quarterly)

MISTAKE #2 : I accorded equal importance to all my investment of Rs 500 each month. Obviously the Rs 500 that I deposit in the first month will generate more interest as compared to the Rs 500 that I will deposit in the final month.

So now I sat down to generate an Excel sheet:

Principle, P	Rate of interest, r	No of times interest is compounded in a year,n	Months remaining	Months remaining as expressed in year,t	1+r/n	nt	(1+r/n)^nt	Amount, A
500	0.09	4	12	1	1.0225	4	1.0930833	546.541659
500	0.09	4	11	0.916666667	1.0225	3.666667	1.0850061	542.503027
500	0.09	4	10	0.833333333	1.0225	3.333333	1.0769885	538.494237
500	0.09	4	9	0.75	1.0225	3	1.0690301	534.51507
500	0.09	4	8	0.666666667	1.0225	2.666667	1.0611306	530.565307
500	0.09	4	7	0.583333333	1.0225	2.333333	1.0532895	526.644731
500	0.09	4	6	0.5	1.0225	2	1.0455063	522.753125
500	0.09	4	5	0.416666667	1.0225	1.666667	1.0377806	518.890276
500	0.09	4	4	0.333333333	1.0225	1.333333	1.0301119	515.055971
500	0.09	4	3	0.25	1.0225	1	1.0225	511.25
500	0.09	4	2	0.166666667	1.0225	0.666667	1.0149443	507.472153
500	0.09	4	1	0.083333333	1.0225	0.333333	1.0074444	503.722221
						TOTAL AMOUNT		6298.40778

  So finally, I got my answer! 😀

So this is how you can calculate your maturity amount for a Recurring Deposit. I hope this can be of use to someone who was just as confused as me!

P.S- While making the Excel sheet, I came across some shortcuts which I think would be useful to you guys as well.

1) If you have to copy the contents of one cell to multiple cells:                                               First select the range of cells for which you want the same value( for eg, I wanted the value of Rs 500 for the first 12 rows for the first column). After selecting, enter the value in the first cell of the range but DONT press the Enter key. Now press CTRL+ENTER keys. Voila, the value gets copied in the entire range of cells!

2) If you want to apply the same formula to a range of cells:                                                 As evident from the table, I wanted a particular formula to be applied to various cells, eg while calculating nt, I wanted to multiply the corresponding cells of n and t. But manually entering the same formula again and again is very time consuming, besides being really frustrating. So what we can do is, again select the range of cells for which you want the same formula to be applied. Now enter the formula in the first cell, then press CTRL+ENTER. The values are calculated by adjusting the cell values for the remaining cells eg C2 in the formula for the first cell becomes C3 in the formula for the second cell.