Service Tax on Tips (in hotel business)

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 January 2011 Please advice, Is service tax is applicable on tips in case of spa service provided to customer as per under clause -

The Spa services are liable to service tax user sub clause (zw) of clause (105) of section 65 of Finance Act, 1994 which defines taxable service as "any service provided or to be provided to any person, by a health club and fitness center in relation to health and fitness service".

Section 65 (52) of the Act defines 'health club or fitness center' as follows:

"Health club and Fitness center means any establishment, including a hotel or resort, providing health and fitness service".

Further the term 'health and fitness service' has been defined u/s 65(51) of the Act which means "service for physical well being such as, sauna and steam bath, Turkish bath, solarium, spas, reducing or slimming saloons, gymnasium, yoga, meditation, message (excluding therapeutic massage) or any other light service".

Pradeep Kamath

Pradeep Kamath (Expert)
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14 January 2011 When tips are given to the employee of the spa, the customer is not paying the amount to the service provider (i.e., Health club and Fitness center), and hence according to section 67 (which provides that the value shall be gross amount charged by the service provider for such service provided or to be provided by him), such tips paid to the employee cannot be included in the value of service.
Therefore, service tax is not chargeable on tips.