Service charge collected by hotels is not service tax: Finance ministry

The government today clarified that service charge collected by certain restaurants and hotels is not service tax, which is levied at a rate of 5.6 per cent on the total bill.

As per the statement from the finance ministry, “These 'service charges' collected by the restaurants/ hotels/eateries are retained by the restaurants/hotels/eateries and are not 'service tax' imposed by the government.” Some consumers think that these service charges are being collected by the restaurant on behalf of the government as tax, the ministry’s statement emphasized.

In case of air-conditioned eateries and hotels, service tax at the rate of 14 per cent is charged only on 40 per cent of the bill amount. The effective service tax rate in respect of services provided in relation to serving of food or beverage by a restaurant, eating joint or mess having the facility of air conditioning or central air-heating in any part of the establishment is 5.6 per cent of the total amount charged.

The government had increased the service tax rate from 12.36 per cent (including education cess) to 14 per cent from June 1.

No fine till 3 days after credit card bill’s due date

The Reserve Bank of India (RBI) has asked banks to levy any late-payment penalty on credit-card customers only if the payment has been due for more than three days. As per the same directive, banks should also report delayed payment to credit-information companies (CICs) only when a credit-card account remains ‘past due’ for more than three days.

The directive will benefit those whose payment or transfer gets delayed due to a bank holiday or for any other reason. At present all banks state that late-payment charges are applied if payment is not made by due date. These charges vary from Rs 100 to Rs 700 depending on the total payment due.

Although earlier RBI had issued a directive stating that the next statement date should be the reference date for computing penalties and reporting defaults to credit bureaus, banks have continued to use the due date for imposing late fee.

In a circular issued to all banks, RBI said that in order to bring in greater credit discipline as also to provide operational flexibility to credit-card issuers, ‘past due’ status of a credit-card account for classifying bad loans would be reckoned from the payment due date mentioned in the monthly creditcard statement. “Consequently, in case of banks, a credit-card account will be treated as non-performing asset if the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the payment due date mentioned in the statement,” RBI said.

The RBI further asked banks to report a credit-card account as ‘past due’ to credit information companies or levy penal charges, such as late-payment charges, only when a credit-card account remained ‘past due’ for more than three days. The number of ‘days past due’ and late-payment charges should be, however, computed from payment due date mentioned in the credit-card statement, it added.

In credit-card accounts, the amount spent is billed to the card users through a monthly statement with a definite due date for repayment. Banks give an option to card users to pay either the full amount or a fraction of it or a minimum amount on the due date and roll over the balance to the subsequent month’s billing cycle.