GST Compliance for Online Food Sellers: Your Comprehensive Guide

Managing GST Compliance for Online Food Sellers can be challenging, with high tax rates and tricky TCS rules. Avoid penalties with our guide that simplifies compliance, ensuring smooth business operations. Scroll down to learn more!

Introduction: GST Compliance for Online Food Sellers

Why GST Matters for Online Food Sellers

The online food delivery market has seen explosive growth, projected to reach ₹1.2 trillion (approximately $16 billion) by 2024 in India alone with a CAGR of 20% from 2021 to 2026. With platforms like Swiggy and Zomato driving this demand, the landscape for food sellers has evolved significantly.

This rapid expansion has made GST compliance increasingly critical for online food sellers, including delivery services, takeout options, and cloud kitchens.

Feature	Delivery Services	Takeout Options	Cloud Kitchens
Order Method	Online/app, delivered to customer	In-person/phone, customer pickup	Online/app, delivery-only
Customer Reach	Based on delivery radius	Local customers only	Broader delivery area
Setup	Traditional restaurant kitchens	Restaurant kitchens, dine-in also possible	Delivery-only kitchens
Cost	Delivery fees	Moderate, no delivery cost	Lower overhead, no dine-in
Advantage	Convenient home delivery	Quick pickup, no delivery wait	Efficient, wide delivery reach
Limitation	Potential delivery delays	Limited reach, requires pickup	No customer interaction or brand presence

Moreover, around 80% of food delivery businesses report challenges related to GST compliance, which can lead to significant financial repercussions.

Recent updates to GST laws have added layers of complexity, making it essential for sellers to stay informed. Ensuring compliance not only helps avoid legal troubles but also enhances business credibility and consumer trust.

GST Registration Requirements for Online Food Sellers

Who Needs to Register for GST?

Under the GST law in India, online food sellers, including those operating through platforms like Swiggy and Zomato, are required to register for GST if they meet certain criteria. 

• All Online Food Sellers: Any business that sells goods or services online is required to register for GST, irrespective of its turnover. This applies to individual sellers, cloud kitchens, and restaurants offering delivery services via e-commerce platforms.
• Aggregators and E-Commerce Operators: Platforms that facilitate food deliveries, like Zomato and Swiggy, are liable to collect Tax Collected at Source (TCS) and are responsible for passing it on to the seller's GST account. Due to these TCS deductions, online sellers must be GST-registered to claim TCS credits in their GST returns.

This rule applies to both intra-state (within the same state) and inter-state (across state borders) sellers. Any business operating through online channels, regardless of its size or turnover, must complete GST registration to comply with tax regulations and facilitate TCS reconciliation.

Exceptions and Thresholds

While GST registration is generally mandatory for sellers operating on e-commerce platforms, there are specific exemptions and schemes available for offline businesses:

• Turnover-Based Exemption for Non-E-Commerce Sellers: 

Sellers who operate offline and do not use e-commerce platforms may qualify for a GST registration exemption if their annual turnover is below ₹40 lakh for goods or ₹20 lakh for services (₹10 lakh for certain special category states). 

However, this exemption does not apply to sellers using e-commerce platforms (such as Swiggy, Zomato, or cloud kitchens), as these platforms require mandatory GST registration irrespective of turnover​.

• Composition Scheme for Small Food Businesses: 

Offline food businesses with annual turnovers up to ₹1.5 crore can opt for the Composition Scheme, which allows them to pay GST at a lower, flat rate without the benefit of input tax credits. 

However, this scheme is not available for businesses selling through e-commerce platforms, which means online sellers cannot benefit from the Composition Scheme, regardless of turnover.

• Key Note on Online Compliance: 

Recent GST amendments specifically require all online food businesses—including small cloud kitchens, restaurants, and delivery services—to register for GST. 

The turnover threshold exemptions and Composition Scheme options do not apply to online sellers, making compliance essential to avoid penalties.

GST Rates on Food Products: A Breakdown

GST Rates for Various Food Categories and Services

Understanding GST rates is crucial for online food sellers, as different types of food items and services carry distinct tax rates. Here’s a simplified breakdown:

Unbranded Food Items: Essential food items that are unbranded and unpackaged, like grains, pulses, and fresh produce, are exempt from GST. This exemption helps keep basic food staples affordable for consumers.

Branded and Packaged Foods: Branded or packaged food items—such as snacks, packaged meals, and bottled beverages—are taxed at 5% GST. This rate applies to products that are labelled or sold with a registered brand, reflecting the added value of packaging and branding.

Restaurant Services:

Dine-In Services: Meals served in restaurants incur a 5% GST rate without the benefit of Input Tax Credit (ITC).

Takeaway and Delivery: Takeout meals and food delivery services offered through platforms like Swiggy and Zomato are also subject to 5% GST, with no ITC eligibility. This uniform rate aims to simplify compliance for restaurant owners and delivery aggregators alike.

Cloud Kitchens: Cloud kitchens—businesses operating exclusively for online orders—are taxed at a 5% GST rate. Similar to dine-in and delivery services, cloud kitchens are not eligible for ITC claims under this rate structure.

By knowing these rates, online food sellers can ensure they’re charging customers the right GST amount and maintaining compliance, especially when offering varied services like dine-in, takeaway, and delivery.

Tax Collection at Source (TCS) for E-commerce Platforms

What is TCS and How Does It Affect Online Food Sellers?

Tax Collection at Source (TCS) is a mechanism under GST where e-commerce platforms like Swiggy, Zomato, and others collect a percentage of the seller’s revenue and remit it to the government. 

This tax is collected at a rate of 1% on the net value of sales made through these platforms. TCS enables easier tracking of tax liabilities and ensures compliance across online sales transactions.

For food sellers, TCS affects their cash flow and requires them to account for the TCS collected on their behalf by the platform. Here’s how sellers can manage it:

• Calculation of TCS: TCS is calculated as 1% of the net sales (excluding GST) made by the seller on the e-commerce platform. For example, if a seller has made sales worth ₹50,000 in a month, Swiggy or Zomato would deduct ₹500 as TCS and remit this to the government.
• Adjustment of TCS: Sellers can claim credit for TCS in their GST returns, which helps offset the GST payable on their total sales. This credit can be adjusted in their monthly GST return (GSTR-3B), reducing the final tax payable.

Role of Aggregators and TCS Reconciliation

E-commerce platforms, also known as aggregators, play a significant role in TCS compliance for online food sellers:

• Aggregator’s Role in TCS: The aggregator collects TCS on behalf of the seller and deposits it with the government. This collected amount appears in the seller’s GST portal under the TCS Credit Ledger.
• Importance of TCS Reconciliation: Sellers must reconcile the TCS collected by the aggregator with their own records and GST filings. This means verifying that the TCS amounts match what the platform has reported to the government. Inaccuracies or mismatches in TCS data can lead to discrepancies in GST returns, potentially causing delays or penalties.

Filing GST Returns: Forms, Timelines, and Reconciliation

Monthly and Annual Return Requirements

Online food sellers must adhere to GST filing requirements, including GSTR-1 (monthly return for outward supplies, due by the 11th of the following month), GSTR-3B (monthly summary return, due by the 20th), and GSTR-9 (annual return, due by December 31 of the next financial year). Timely filing is crucial to avoid penalties.

Reconciliation of Returns with TCS Data

Reconciling GST returns with Tax Collected at Source (TCS) data is essential for accuracy. Common issues include incorrect entries and mismatched records, which can complicate the reconciliation process. Regular cross-checking helps ensure compliance and maintain reliable records.

Input Tax Credit (ITC) for Online Food Businesses

Eligibility for Input Tax Credit

Input Tax Credit (ITC) enables online food businesses to reduce their tax burden by claiming credit on GST paid for business-related expenses, such as raw materials and services. To qualify, businesses must be GST-registered, and expenses must be for taxable supplies, supported by valid tax invoices.

Restrictions on ITC for Cloud Kitchens and Delivery

Online food businesses, especially cloud kitchens and delivery services under the 5% GST rate, face restrictions on ITC claims. They cannot claim ITC on inputs used for non-taxable supplies or certain personal use expenses. Understanding these limitations is vital for effective tax planning and compliance.

Place of Supply and Interstate vs. Intrastate Transactions

Understanding the "place of supply" is essential for online food sellers, as it dictates whether transactions are classified as intrastate or interstate, affecting the applicable GST rates.

Understanding Place of Supply in Online Sales

When food is sold and delivered within the same state, it is classified as an intrastate transaction, attracting both Central GST (CGST) and State GST (SGST). 

Conversely, if the food is delivered to a location in a different state, it becomes an interstate transaction subject to Integrated GST (IGST). 

This classification directly influences the tax rate applied to sales, which can vary depending on the type of food sold and the respective state regulations.

Implications for Sellers Operating Across States

Food delivery services operating under multiple business models (e.g., cloud kitchens, franchises) need to consider how their operational structure affects GST. 

For instance, if a cloud kitchen serves customers in different states, it must apply IGST for those interstate deliveries, while ensuring compliance with any state-specific regulations that may apply.

Challenges and Common Issues in GST Compliance for Online Food Sellers

Complexity of Compliance with Varying Rates and Exemptions

Online food sellers often face challenges in GST compliance due to the multiple tax rates that apply to different food categories. For example, while most restaurant services are subject to a GST rate of 5%, certain items may be exempt or taxed at a different rate, such as 12% or 18% for specific packaged foods.

Additionally, maintaining detailed records of all transactions to ensure compliance with varying rates adds to the administrative burden.

Reconciling TCS with GST Returns

Common challenges in reconciliation include discrepancies between the TCS reported by e-commerce platforms and the GST returns filed by sellers.

Errors in data entry, differences in sales figures, or miscommunication regarding TCS rates can lead to mismatches, complicating the reconciliation process.

Sellers must keep accurate records and conduct regular audits to swiftly identify discrepancies, as improper reconciliation can lead to penalties and compliance issues.

Recent Amendments in GST for E-commerce and Food Delivery

Key Amendments and Their Impact

Recent GST amendments have significantly impacted the e-commerce and food delivery sectors, particularly for online food sellers. Key changes include:

1. Tax Collected at Source (TCS): E-commerce operators must now collect TCS at 1% on the net value of taxable supplies, including food deliveries, to improve tax compliance and transparency.
2. New GST Return System: A new GST return system requires online food sellers to file GSTR-1 and GSTR-3B with more detailed reporting and stricter timelines, altering compliance responsibilities.
3. GST Rate Clarifications: The GST rate for restaurant services is set at 5%, which includes takeout and delivery services, while certain packaged foods may have varying rates.
4. E-invoicing Requirements: The threshold for mandatory e-invoicing has been lowered to ₹5 crore, affecting online food sellers exceeding this limit and enhancing tracking and compliance.

Future Trends and Compliance Tips 

As online food businesses adapt to the evolving GST landscape, several key trends and compliance strategies will help them stay ahead:

• Data Analytics for Compliance: Leveraging data analytics tools can help businesses monitor sales patterns and compliance metrics. The NITI Aayog emphasizes data-driven decision-making to improve tax compliance and quickly identify discrepancies.
• Training and Awareness Programs: Regular training sessions are essential to keep staff updated on the latest GST regulations. The Federation of Indian Chambers of Commerce & Industry (FICCI) suggests workshops to enhance awareness among food business operators.

Conclusion

To wrap up, understanding and adhering to GST regulations is essential for online food businesses to ensure smooth operations and avoid costly errors. Consistent compliance, proactive record-keeping, and leveraging technology can lead to greater efficiency. 

FAQs

Q. What GST rates apply to restaurant services and food delivery?

The GST rate for restaurant services, including takeout and delivery, is set at 5%. However, certain packaged foods and beverages may attract different rates, ranging from 0% to 18%, depending on the product category.

Q. What is Tax Collected at Source (TCS) in the context of online food businesses?

Tax Collected at Source (TCS) requires e-commerce operators to collect 1% TCS on the net value of taxable supplies, including food deliveries. This helps improve tax compliance and transparency in the sector.

Q. What are the common challenges in GST compliance for online food sellers?

Common challenges include managing multiple GST rates for different food categories, reconciling sales data with TCS deductions, and ensuring timely filing of returns to avoid penalties.

Q. How can I simplify GST compliance for my online food business?

You can simplify GST compliance by using accounting software that integrates GST calculations, maintaining accurate records of sales and expenses, and seeking guidance from tax professionals experienced in GST regulations.