Service Charge - Definition, What is Service Charge, Advantages of Service Charge, and Latest News - ClearTax (2024)

Introduction

The service charges are a type of fee collected to pay for services associated with the purchase of the primary product or service. Typically, the charges are applied at the time of transaction. Service charges are collected by many sectors, including restaurants, banking, and travel and tourism.

The charges which are collected might cover the administration or processing costs. Service charges are charged directly to the company. They are different from tips given to the employee who is delivering the service.

Understanding Service Charges

Consider an example where, in addition to the initial price of a vehicle at the time of purchase, a showroom may charge service fee like pre-delivery inspection charges, accessories fitting charges, and card-swiping charges.

The service charges are also known as service fees. They are called by different names, including booking fees in hotels, security fees during travel, and account maintenance fees and customer service fees in banks.

Types of Service Charges

1. Banking Industry The banking industry charges various service charges, usually set at a flat or fixed rate. When you open a bank account with a check or deposit, the bank charges a monthly fee known as a maintenance fee. By the end of the month, the fee is debited from the account. Banks also charge service charges when using a competitor bank ATM, or when a wire transfer is initiated.

2. Airlines Industry Airlines collect several service charges, such as checked or oversized baggage fees, change or cancellation fees, early seat selection fees, and inflight experience fees, such as WiFi, food, beverage, and entertainment.

An airport improvement or boarding fee is a service charge that applies to passengers departing and connecting at an airport. These charges are imposed by the government or an airport management company, and the proceeds are usually intended to fund substantial upgrades to the airport or to extend airport facilities.