Why Do We Keep Arguing About Service Charge?
12 Dec 2025 7:30 AM IST
When you go out to eat and spot that 10% service charge, what do you do?
Pay it? Remove it? Argue about it with your friends?
In 2022, India banned mandatory service charge. But many restaurants still add it.
Consumers I spoke to said they get service charge removed. They prefer to tip workers directly.
Most workers said they appreciate tips. But some said they feel insulted about it.
In the latest episode of The Signal Brief, we look at what India thinks about paying service charge versus tipping, and what each system means for workers.
The Core produces The Signal Brief. Follow us wherever you get your favourite podcasts. To check out the rest of our work, go to www.thecore.in
NOTE: A machine transcribed this episode. A human has looked at this text but there might still be errors. Please refer to the audio above, if you need to clarify something. If you want to give us feedback, please write to us at feedback@thecore.in.
—
TRANSCRIPT
Kudrat (Host): Anant, who’s 20 and works at his family’s business, told me that when he eats out, he always asks the restaurant to remove the service charge from his bill.
Anant: If I want to tip someone, for example, the waiter serving me. He is putting in a lot of effort. Then I tip him alone. Why would I pay the service charge when I know the service charge won't even get to them?
Kudrat (from clip): So you basically don't trust that the service charges go to the waiters?
Anant: I don't. Okay. It's all for the company. I have been part of the family business, and I've seen a lot of, I have a lot of known people who run a restaurant, so I've seen it. Okay. It doesn't go to the waiter, anyone. Okay.
It goes to the company itself.
Kudrat (Host): Another consumer I spoke to — Rachit, who’s 30 and works in finance — said the same thing. He also asks restaurants to remove service charge. Instead, he prefers tipping the server directly, usually between 100 to 500 rupees.
Kudrat (Host): My name is Kudrat Wadhwa and you’re listening to The Signal Brief. We don’t do hot takes. Instead, we bring you deep dives into the how and why of consumer trends.
In today’s episode, we look at what India thinks about paying service charge versus tipping, and what each system means for workers.
Kudrat (Host): The practice Anant described, of restaurants adding a service charge and then allowing customers to remove it if they wish, is common in most mid-range and upscale restaurants today.
But that wasn’t always the case. Before 2022, many restaurants levied a mandatory service charge on bills. That changed when the Central Consumer Protection Authority, or CCPA, made the practice illegal.
I reached out to consumer-affairs lawyer Karun Mehta to understand the regulatory maze.
Karun: This service charge has been a practice which has been followed by a lot of restaurants for some years now.
Slowly, people started realising that the percentage of service charge which is being charged is much higher than what they would end up paying in tip. So if you go to a restaurant and when you are paying a bill of about 3,000, which is a very normal bill, that would come, I think you would end up paying a service charge of about 300 rupees, and that kind of tipping was not seen in India. And I think that is where, you know, people started questioning as to why the restaurants are charging.
When the CCPA, which is the regulator, when it came into picture, the regulator came out with guidelines. Those guidelines were on 4th of July, 2022, where they completely banned the concept of service charge.
And the reason was that, you know, your prices anyways include all sorts of costing that you incur. Therefore there is no concept of service charge which you can claim or you can charge a customer in addition. And those guidelines were then challenged before the Delhi Court.
Kudrat (Host): Restaurant bodies, including the Federation of Hotel and Restaurant Associations of India or the FHRAI and the National Restaurant Association of India or the NRAI, challenged CCPA’s ruling. They argued that service charge isn’t arbitrary — they see it as a motivating incentive for staff.
Karun: The understanding regarding service charge was sometimes that it is paid as an incentive to the employees who are working there, which is paid in addition to the salaries that they earn.
Service charge was also looked at from the aspect that whatever losses that the restaurant incurs on account of breakage or losses in cutlery and other items, they don't really come up to the customer and ask them to pay. So these kind of ancillary expenses are also kind of covered in the service charge.
Kudrat (Host): Ultimately, the Delhi High Court upheld the CCPA’s guidelines.
But it did leave restaurateurs some room: service charge can appear on a bill, but restaurants cannot pre-fill them.
Karun: What the High Court’s judgment says is that a restaurant cannot put in the price in its invoice. It may want to add service charge as an item. It can, but it has to leave it blank for the customer to voluntarily put it.
Kudrat (Host): Of course, not every restaurant follows this rule to the T. Some still add a service charge directly to the bill.
Karun told me that if consumers want to complain, they can contact the National Consumer Helpline.
But service charge is only half the story.
The other half is tipping — something most of us see as simple courtesy, but one that comes with a surprisingly complicated past.
Kudrat: In the book ‘Tipping: an American History of Social Gratuities’, cultural historian Kerry Segrave writes that tipping originated in Britain in the Middle Ages. Small gratuities existed in India too, you’re probably familiar with the practice of ‘giving a baksheeshk’ but it was the British who helped formalise and expand this practice during the colonial period.
In the United States, tipping took a darker turn. After the Civil War, many newly freed Black workers were not paid proper wages. Their employers expected them to survive on tips instead. That legacy is why most states in the US still have a lower minimum wage for tipped workers.
Restaurant lobbies in the US defend tipping because it keeps labour costs low. Labour activists want it abolished because it leaves workers dependent on customer mood instead of a guaranteed income. Consumers are divided: on the one hand, they understand the expectation. On the other, tipping can sometimes be awkward, and expensive too.
Here’s a clip from youtuber Jon Barr’s video, where he talks about the uncomfortable social pressure of tipping:
Clip: https://www.youtube.com/watch?v=bxg3fcJ-zQw
Kudrat (Host): Now, compared to tipping, which is unpredictable and can come with a weird power dynamic, service charge is a more formal incentive structure.
Instead of leaving a worker’s income to chance, it tries to create a steady system where everyone earns, regardless of who walks through the door.
Kudrat (Host): India isn’t the United States; our labour laws are different, our tipping culture is different, and the expectations between diners and workers are different, too. Still, the core question remains similar.
Should a worker’s earnings depend on how generous a customer feels that day? And what do Indian workers actually want: predictable income through service charge, or the direct recognition of a tip?
Kudrat (Host): A server at an upscale North Indian restaurant in South Delhi told me she appreciates when customers leave tips, because it’s representative of how well she did her job. The restaurant also charges a 10% service charge, which they remove if customers ask. She said that both tips and service charge money go to a single pool, which employees then divide among themselves at the end of the month.
Workers at a branch of a popular coffee shop chain had mixed feelings. One server told me he felt embarrassed and mildly insulted about getting a tip because he felt his salary was adequate. He preferred compliments, either to him directly or to his manager.
Another server said that he was ambivalent. He was happy to receive tips but also good with foregoing them.
He also said that the café doesn’t levy a service charge anymore. But, even when it did, workers weren’t aware of how it got distributed among them, or if it reached them at all.
Kudrat (Host): And that uncertainty brings us back to Anant and Rachit, whose voices we began this episode with. They both prefer tipping to paying service charge because, in their minds, it guarantees that the money reaches the person who served them.
Service charge, unlike tipping, feels like a black box. Workers say they do not always know how it is distributed. Consumers say they do not know whether it is distributed at all.
I asked lawyer Karun Mehta about this lack of clarity. He said that at the moment there is no law that tells restaurants what to do with service charge money or how to disclose it.
Kudrat (from clip): So you know what happens with this service charge generally, does it go and tips as well? Do they go to servers to workers or do they go to restaurant owners who then decide what to do with it?
Because that's another big confusion that consumers have, where they don't trust service charge and even tips because they don't really know what happens with that..
Karun: There is no regulation as such which can audit the kind of service charges which are being… because if tomorrow, assuming the charge as a matter of right is allowed to the restaurants, then I think the most logical way to do it is to ensure that they provide an audit of how this service charge amount is being used, and if it is being used for the purpose for where it is being charged — which either is to incentivise their employees or maybe to cover the cost that they incur because of loss of their cutlery and other things.
But as of date, there is no such regulation which requires any audit. So I think ultimately it is what we hear from the restaurant owners as to how they use it. That is the only way. You know, there is no way to check. There are no checks and balances as of today where one customer can actually find out as to how that money is being utilised.
Kudrat (Host): What this debate really shows is that there’s a real lack of trust in the system.
Consumers hesitate to pay service charge because they don’t trust it actually reaches the people who served them. Workers say they don’t always know how much of it really flows to them. And restaurants, operating without clear disclosure rules, ask diners to trust a system that offers very little transparency.
So, diners end up tipping, but that can be awkward and uncomfortable for both parties too.
And so, the real problem isn’t whether you should pay a service charge or whether you should tip. But that India does not have a predictable and transparent way of running the service economy yet.
Outro: That's all for today. You just heard The Signal Brief. We don't do hot takes. Instead, we bring you deep dives into the how and why of consumer trends. The Core produces The Signal Brief. Follow us wherever you get your favourite podcasts.
To check out the rest of our work, go to www.thecore.in.
If you have feedback, we'd love to hear from you. Write to us at feedback@thecore.in or you can write to me personally at kudrat@thecore.in.
Thank you for listening.
