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On the internet, you’ll often find the debate where the rest of the world gawks awkwardly at the insane rates of tipping expected in North America, and the locals defend it with a variety of explanations. This includes everything from servers’ dignified hard work to minimum wage policies to union-busting history in the States. Over the years, food chains and restaurants have figured out that if the consumers are guilted enough about the serving staff earning a living wage, they’ll leave tips out of concern, and the establishment doesn’t have to really care about paying the staff enough.
In India, tipping was reserved to cash based tips for when the patron loved the service. Think a modern variant of baksheesh, if you will. Servers who took care of your smallest demands, remembered what you liked from your last visit, basically, went the extra mile. In the last few years, however, as the entire hospitality industry got a bit more commercialised, the bills started coming with a smaller amount right after your food, the service charge.
The service charge debate
Cut to today, almost all the restaurants, cafes, and eateries have started adding a service charge of 5-12 to the bill. Some have called it equivalent to the tips, some have given the same old ‘serving staff must get paid extra out of respect’. What started as a token of appreciation has now turned into a predictable revenue generation. On top of it, as a consumer, even if you believe the service charge is a good way for the wait staff to be paid a bit more, there is no way to check if they even get the money.
So, in 2019, the government took notice. Under the Consumer Protection Act 2019, it is now considered an unfair trade practice to automatically or mandatorily add a service charge to the bill. While it is 6 years too late to have been implemented, the consumers have welcomed it. And even if it feels a small step, for folks who love to eat out, it is a good monetary relief. With the current gst rates and norms, you first paid tax on the food, then the restaurant added a 10% service charge, and then you also paid tax on that. With the Central Consumer Protection Authority stepping in, and the Delhi High Court backing them up, the mandatory service charge is now unlawful.
What the Delhi High Court said about the service charge
The matter reached the Delhi High Court after restaurant industry bodies, primarily the National Restaurant Association of India and the Federation of Hotel & Restaurant Associations of India, challenged the guidelines issued by the Central Consumer Protection Authority. The petitioners argued that the CCPA had overstepped its powers, claiming that the service charge was a long-standing industry practice, transparently disclosed on menus, and essential to ensuring fair staff compensation in a country without strong tipping norms.
Now this is where it got interesting. As we pointed out earlier, tipping in India has long been subject to how good the patrons felt the service was. And the service charge essentially forces the consumer to pay whether they liked the service or not. In many places, service only gets better with tips, and in many others, tips are expected for the very basic job of getting the food out of the door and to your table.
The court, unimpressed by the argument, drew a sharp legal distinction between price (what a restaurant charges for food and service) and gratuitous payment (what a customer may choose to give extra. It also acknowledged the fact that a lot of establishments get away with it because of the social guilt consumers feel about challenging the forced charges. That social coercion, the court said, squarely falls under unfair trade practice.
So, no service charge in restaurants now?
Now this is the part that most summaries you’ll read online have gotten wrong. The Delhi High Court has not banned service charge altogether. It has merely upheld the CCPA’s right to regulate how they are presented. The restaurants can still add a service charge, explain it on the menu, and be very transparent about it. And the consumer can still deny paying it, without it turning into a hot, dramatic mess. In legal terms, the court reinforced the idea that consent must be free, informed, and revocable, even at a fancy table in a restaurant.
Now it can go either way; the consumers might make peace with restaurants asking for a service charge or completely skip these places altogether. And whether they’ll stop tipping altogether once they see the service charge? Time will tell. What we see as a bigger issue is the pretence that the service charge can compensate for the unfairly low wages. It should be an establishment’s responsibility to ensure its employees are paid appropriately.