Swiggy and Zomato to charge extra 5% for food delivery from Jan 2022

Beginning January 1st, food delivery platforms including Zomato and Swiggy are set to be treated on par with restaurants, meaning Swiggy and Zomato would charge an additional 5% from the customers under the Goods and Services Tax regime.

This additional charge is likely to affect the coupon discounts provided by Swiggy and Zomato for customers as it is yet to know whether the charge will be added to the base price or the discounted price.

Unlike ordering food from a restaurant, meal delivery apps, which operate as e-commerce operators, provide discounts at multiple transaction points based on the use of a certain method of payment, such as a debit/credit card, digital wallet, or more.

Customers are also offered additional discounts if they order more than a certain quantity or from a certain restaurant. One of the key considerations here is whether the 5% GST should be paid on the original price or the reduced price.

Currently, food delivery apps like Zomato and Swiggy are registered as Tax Collected at Source (TCS) in GST records.

At present, if any customer orders from the restaurant using Swiggy or Zomato, the online food app collects a 5% tax on food from the customer and passes it on to the restaurant. However, from 1 January, the food delivery apps will collect the tax from customers on behalf of the restaurant and deposit it to the government on their behalf. This will eventually become mandatory for restaurants to register themselves.

With this, the customers will not be charged anything extra. They continue to pay 5% tax on the food that they will order online. This has been introduced with the view that restaurants come under the government tax net.

Tax industry analysts suggest that the new GST tax rule will impact small restaurants, especially those which annual turnover less than Rs 20 lakh as these restaurants were not included in the GST net earlier.

For most restaurants now, there will be an additional compliance load as they will have to maintain two separate accounts — one for their regular business and the second for the business done through Zomato or Swiggy.

As for food delivery platforms, this will also add more burden of compliance towards collecting and bookkeeping of taxes on behalf of the restaurants.

In its decision, the GST Council on September said that food delivery platforms including Zomato and Swiggy will have to collect tax on items from consumers instead of restaurants from where they pick up orders. This will help in easing the tax administration and further GST deposits will have to be made by the customers instead of the restaurants for the deliveries.

Union Finance Minister who also heads the GST Council after a meeting of Goods and Services Tax Council said that the services by cloud kitchen and food delivery platforms will be charged 5% GST. "Food delivery operators like Swiggy who collect orders from restaurants and deliver (to customers)… the place where the food is delivered will be the point on which tax will be collected by the gig groups Swiggy and others," FM Sitharaman said.

Clarifying the decision taken by the GST Council, Revenue Secretary Tarun Bajaj said that the GST collection centre has been merely transferred and no new taxes have been announced for the consumers. Adding to it, he said that customers ordering food from the aggregator are supposed to pay tax, however, the restaurants are paying those.

Finding several instances of restaurants not paying the GST, it has been mandated that the aggregators have to collect the tax from the consumer and further pay it off to the authorities.

The move has been taken in the backdrop of several cases of tax evasions found exercised by restaurants bringing a gap in tax turnover in food supplies.