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Food delivery apps like Swiggy, Zomato, and cloud kitchens may be liable to GST

Ordering food online through apps such as Zomato and Swiggy may become more expensive. The Goods and Services Tax (GST) Council will soon consider whether to tax food delivery apps and Cloud Kitchens. A proposal on this subject is expected to be discussed in the GST Council’s next meeting, which is currently scheduled for September 17 in Lucknow. Union Finance Minister Smt. Nirmala Sitharaman will oversee over the meeting.

INR 500 notes with Pen on a table

Courtesy: Unsplash

Traditionally, the GST was only enforced on restaurants, but now the Council is expected to consider imposing GST on food delivery apps like Zomato and Swiggy. Food delivery apps are likely to be categorized as restaurant services by the Council. According to sources, this would make food tech platforms like Zomato and Swiggy, as well as others, accountable to pay GST on restaurant services provided through them. Customers only pay GST on food items but not on delivery services, in accordance with current regulations.

Food aggregators such as Zomato and Swiggy, along with cloud kitchens that provide food delivery services, should be recognized as e-commerce entities and pay GST like restaurants, according to the Fitment Committee proposal. According to the proposal, these food delivery platforms should be recognized as deemed providers or aggregators. The fitment committee estimates Rs 2,000 crore in GST losses in 2019-20 and 2020-21

The deemed providers might be taxed in two circumstances: first, from restaurants to e-commerce operators, paying 5 percent without input credit and 18 percent with input credit. According to the proposal, e-commerce operators’ services to customers should be taxable at 5 percent with limited input credit.

The Fitment Committee’s second proposal is to inform e-commerce platforms that they are aggregators. In this situation, the tax rate can be determined later, and e-commerce platforms will be obligated to pay GST on all supplies/deliveries made for the restaurant service.

Additionally, there seems to be a Rs 20 lakh base limit for service providers to get GST accredited. As a result, the proposal is to categorize all restaurant services as ‘aggregators,’ and e-commerce platforms as ‘aggregators of delivery services.’

According to reports, Cloud Kitchens may also be subject to a roughly 5 percent GST. The suggestion will most definitely be addressed in the 45th GST Council meeting. Even if a GST is imposed on food delivery companies, the new regulations will not take effect until January 1, 2022, giving companies time to revamp their software and adjust to the new guidelines.

The Cloud Kitchen industry in India is also expected to expand substantially. The industry, which includes companies such as Curefoods, Charcoaleats, Food Darzee, Healthie, Behrouz Biryani, and Box8, is projected to be worth $1.05 billion by 2023.

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