On tips and GST, the short answer is this. A tip the client gives by choice, which goes in full to your staff, isn’t part of your price, so it carries no GST. A compulsory service charge printed on every bill is part of the price, so it is taxed at 5% like the service. If the salon keeps a share of the tips, that share is at risk too. Record tips on the bill, separate from the taxable value, with the name of the person each tip is for.
This guide explains the rules in plain words; it isn’t tax advice. Check your own case with your CA.
Why a voluntary tip carries no GST
GST is charged on the value of what you supply. Under section 15 of the CGST Act that is the price actually paid for the supply. A tip isn’t paid for the haircut. It is a gift from the client to the stylist, on top of a price that was already settled. The salon only passes it along.
The Supreme Court made a similar point in 2016, in an income-tax case about a hotel (ITC Ltd v CIT). It held that tips paid voluntarily by customers, even when collected on the bill and paid to staff by the employer, aren’t salary from the employer. The employer holds them in trust for the staff. That case was about TDS, not GST, but it supports the same idea: the tip belongs to the staff, not to the business.
CBIC hasn’t issued a circular on tips. Two conditions keep you safe: the tip is truly optional, and every rupee of it reaches the staff.
When tips and GST do mix: service charges and salon cuts
- A compulsory service charge. “10% service charge” added to every bill is part of what the client must pay for the service. It is part of the value, so GST applies.
- A salon cut. If the salon keeps part of the tips, for example to cover card fees or breakages, that part starts to look like salon income. Tell your CA what you do, and tell your staff too.
- Tips that never reach staff. A “tip” kept by the salon is just a higher price, taxed like one.
The simple rule: never add a tip yourself. Let the client choose the amount, or nothing.
Recording tips on the bill
Tips come in three ways, and each needs a record:
- On the bill, paid by UPI or card. The money lands in the salon’s account, so it must go on the bill as a separate tip line, below the GST and outside the taxable value. Write whose tip it is.
- On the bill, in cash. Same as above; the cash goes in the drawer and is paid out later.
- Straight into the stylist’s hand. It never touches the salon’s money. You don’t have to record it, but some salons ask staff to mention it so the tip report is complete.
| Sample bill with a tip | Amount |
|---|---|
| Haircut and blow-dry (taxable value) | ₹1,000 |
| CGST 2.5% + SGST 2.5% | ₹50 |
| Bill total | ₹1,050 |
| Tip for Neha (no GST) | ₹100 |
| Client pays by UPI | ₹1,150 |
The GST stays ₹50 whatever the tip, and Neha is owed ₹100 from the salon.
Keeping tips on the bill matters for three reasons. Your GST stays right because the taxable value excludes the tip. Your cash tally adds up because the drawer holds the tip money until it is paid out. And your staff can see what they were given.
How to share tips fairly
There is no law on how a salon splits tips. What matters is a rule everyone knows, written down and applied the same way every week.
| Method | How it works | Good for | Watch out |
|---|---|---|---|
| Individual | Each tip goes to the person the client names | Small salons, senior stylists with regulars | Helpers and the shampoo boy get nothing |
| Pooled by days worked | All tips in one pot, split by days present | Teams who work every client together | Strong performers feel short-changed |
| Pooled by points | Pot split by points: stylist 3, junior 2, helper 1 | Busy salons with clear roles | Points must be agreed and written down |
| Mixed | Named tips go to the person; unnamed tips go in the pool | Most salons | Ask the client every time who the tip is for |
Tell clients how it works, too. A small card at the desk saying “Tips go to the team in full” answers the question many clients are too shy to ask, and it keeps everyone honest. If a client wants to tip one person, ask the name and write it on the bill.
Whatever you choose, show each person their tips on a list or their payslip, and never use tips to make up for low pay. Tips are extra; salary and commission are what you owe.
Paying tips out: daily cash or with salary
Pick one and stick to it.
- Daily, from the drawer. Staff like it. At closing, tips paid out today are taken from the cash and written down, so the day-end cash tally still matches.
- Monthly, with salary. Fewer cash movements and a clear record. Tips show as their own line on the payslip, so nobody confuses them with commission. Under the Supreme Court’s reasoning, tips aren’t salary paid by you, so ask your CA how to show them for income tax.
Mistakes to avoid
- Adding GST on a tip, or putting the tip inside the service price.
- A “suggested tip” that is really compulsory.
- Paying tips out of the drawer without writing them down, so the cash tally shows a shortage.
- Giving loyalty points on tips. A tip isn’t a purchase.
- Refunding a tip as part of a service refund. The tip was the staff’s.
Tips in Frizzi
At the till, add a tip and choose who it’s for. The tip stays outside GST, earns no loyalty points and can’t be refunded with the bill. “Pay tips with salary” is on by default, so tips go on the payslip (payroll is in Pro). Switch it off and tips are handed out daily through the cash tally, which counts tips paid out. The Tips report shows tips by day and by person. See the till and payroll and commission.
Questions
Is GST charged on tips at a salon?
Not on a voluntary tip that goes in full to your staff, because it isn’t part of the price of the service. A compulsory service charge is part of the price and is taxed at 5%.
Does a tip count towards a stylist’s commission?
Usually not. Commission is normally worked out on service sales after discount and without GST, and the tip is paid on top. Keep the two apart on the payslip.
Should tips paid by UPI go on the bill?
Yes. UPI and card tips land in the salon’s account, so record them on the bill as a separate tip line, outside the taxable value, with the person’s name. Then pay them out daily or with salary.