New GST Council Structure to Impact Food Delivery Apps

By: Annanya Rana
21 Sep 2021 2:14:57 PM CSMC, Chitkara University, Punjab

The Goods and Services Tax (GST) Council approved the transfer of responsibility of collecting and depositing tax on food aggregators to crack down on restaurants that don’t pay their taxes despite high turnovers,


Currently, food delivery apps like Zomato and Swiggy are registered as tax collected at source (TCS) in GST records. Under this system, the 5% GST on restaurant food is passed on to and paid for by the customer. 


This means, when customers order food through Swiggy or Zomato, they pay a 5% tax on the order to the food delivery app. The food aggregator then passes it on to the restaurants, which are supposed to deposit it with the government. However, the government has found that, in some cases, the taxable turnover of suppliers where TCS is applicable was greater than the turnover declared by them.


Under the new rules, effective January 1, restaurants will also have to compulsorily register themselves as is done by e-commerce sellers affiliated with Amazon, Flipkart, Myntra, etc.


Tax lawyers believe that the most significant impact will be on smaller restaurants, particularly those with an annual turnover of less than Rs 20 lakh, as they were not included in the GST net before. With the responsibility for tax collection lying with the app, these smaller restaurants will also need to pay taxes. This means that they will have to keep two separate books of accounts: one for their normal business and a second for the business done through Zomato or Swiggy.


For the aggregators, this will add the burden of collecting and accounting for the taxes on behalf of the restaurants. The move may also create some confusion in terms of the applicability of input tax credits, for which food aggregators are seeking clarifications from the government.

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