GST on food aggregators aimed at improving compliance in sector

In this case, restaurants will bill to food delivery apps and collect GST while apps will charge GST on customers.

The GST Council fitment committee’s recommendation to bring food delivery apps such as Zomato and Swiggy within ambit of restaurant services and make them liable to pay the tax, is aimed at shifting the responsibility from restaurants to apps to make compliance easier and certain. However, the move will likely marginally increase the tax incidence on small restaurants otherwise exempt from GST (annual turnover less than Rs 20 lakh).

The recommendation may be taken up during the upcoming GST Council meeting on Friday at Lucknow. Of the two options suggested by the panel, the first will require maintaining two books of accounts (sales done through apps and other sales) by small eateries. In the second option, apps will be the deemed restaurant service provider. In this case, restaurants will bill to food delivery apps and collect GST while apps will charge GST on customers.


However, in the second option, food delivery apps will not get any ITC other than on the tax charged by the restaurants (5%) on the purchase value. In the current system, apps pay 18% GST on commission charged by them to restaurants. The apps, which spend substantial amount on advertisement and rent, also get ITC on GST paid on those expenses.

Even to get ITC on taxes paid to restaurants (in the second option), Zomato and Swiggy, which host hundreds of thousands of restaurants on their platform, will have to keep records and follow up to figure out which restaurant has paid taxes or not.

“Given the magnitude of change and the number of players involved in terms of restaurants, it is important that there is a proper consultation with industry before taking a decision,” said Pratik Jain, Partner, Price Waterhouse & Co, LLP.

Currently, the restaurants with annual turnover of Rs 20 lakh or more are mandated to pay 5% GST. But if apps are made responsible to collect and pay GST, then effectively 5% tax liability could also fall on a section of restaurants outside the GST ambit as apps will collect tax from all deliveries.

Analysts do not see a situation where in the government could get any substantial amount of additional tax as a result of the new move. GST authorities felt that a large number of restaurants registered on the full delivery apps don’t actually pay taxes. Once these apps are made responsible, that problem will largely be solved, they reckon.

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