Service charge in restaurants in India: is it legal, and what owners should do

Service charge is not banned in India. What is banned is making it compulsory. On 4 July 2022 the Central Consumer Protection Authority (CCPA) issued guidelines under Section 18(2)(l) of the Consumer Protection Act, 2019. They say a guest decides whether to pay a service charge, and how much, the same way they decide on a tip.

The CCPA's reasoning is simple. Service is already part of the price of food on your menu, and you are free to set that price however you like. When a guest orders, they agree to pay the menu price plus taxes. Anything added on top without their choice is an unfair trade practice under the Act.

So if a guest at Table 6 asks you to take the service charge off, you take it off. No argument, no questions about the food.

• Not by defaultNo hotel or restaurant may add service charge to the bill automatically or by default.
• Not under another nameIt can't be collected as some other fee or charge instead.
• Never forcedYou can't force a guest to pay it, and you must clearly tell them it is voluntary, optional and at their discretion.
• No conditions on entry or serviceYou can't refuse entry or service to anyone because they won't pay it.
• Not mixed into the food billYou can't add it to the food bill and then charge GST on the combined total.

The CCPA says these rules come in addition to the Department of Consumer Affairs guidelines of 21 April 2017 on the same subject.

The National Restaurant Association of India and the Federation of Hotels and Restaurant Associations of India challenged the guidelines in the Delhi High Court. In March 2025 Justice Prathiba M. Singh dismissed both petitions (neutral citation 2025:DHC:2084) and ordered each association to pay ₹1 lakh towards consumer welfare.

• The CCPA had the power to issue these guidelines.
• A mandatory service charge misleads guests, because it looks like a tax, and is an unfair trade practice.
• Guests remain free to tip staff if they want to.

That was a single-judge ruling. The associations appealed to a two-judge bench, which heard the case in 2025. We found no final decision on the appeal when we checked on 10 October 2026, so the guidelines apply meanwhile. We will update this page if that changes.

Owners should know this list, because your staff will hear it at the counter. Under the guidelines a guest can:

• Ask you to remove itThe first step, and the one you want to handle politely on the spot.
• Call the National Consumer HelplineOn 1915, or through the NCH mobile app, before any legal case.
• File a complaint with the Consumer CommissionOnline through the e-Daakhil portal.
• Complain to the District CollectorFor an inquiry and action by the CCPA. Complaints can also go to the CCPA by email.

One unhappy guest and a screenshot of the bill on social media cost more than any service charge you would have collected that month.

1. Build service into your menu prices. This is what the CCPA itself points to: there is no limit on what you charge for a dish. Say Swaad Kitchen charges ₹300 for a Paneer Butter Masala and used to add 5% service charge. Pricing it at ₹315 instead gives the same money on every plate, GST is charged on ₹315 like any menu price, and nobody can dispute it. Our food cost percentage guide shows how to set menu prices from your costs.

2. Offer an optional service charge, and really mean optional. Keep it off the bill by default. After the meal, the server asks once: "Would you like to add a service charge for the team?" Add it only if the guest says yes, and show it on its own line, not folded into the food total.

3. Let guests tip directly. A tip is a separate choice the guest makes after the meal. Guests can tip in cash or by UPI. Decide how tips are shared among the team, write it down, and count them apart from food sales at closing time. Our restaurant closing checklist has a step for tallying the galla and UPI against the day's bills.

• Your billing software does not add a service charge line on its own.
• Menu cards and table tents do not say service charge is "mandatory" or "levied".
• Staff know to remove it at once, without argument, if a guest asks.
• No charge on the bill under another name: "staff fee", "hospitality charge" or similar.
• GST is calculated on the food, not on a total that includes a service charge.
• The rest of the bill is right too: GSTIN, FSSAI number, numbering and tax split, as in our restaurant GST bill format.

With POSBADA restaurant billing software you print GST bills with split payments and discounts from the counter or a waiter's phone, and close the day with a collections report you can export as CSV.