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, cloud kitchens, e-reservations and e-payments..

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

Understanding the GST Framework for Online Food Sellers

The GST Council, recognizing the unique challenges in the digital food service sector, revised the GST framework under section 9(5) of the CGST Act during their 45th meeting. 

As per these revisions, the responsibility of paying GST for restaurant services delivered through e-commerce platforms now falls on the operators themselves, effective from January 1, 2022. This significant move simplifies the tax burden on small food service providers and ensures a more centralized collection point for GST.

Compliance Requirements for E-Commerce Operators E-commerce platforms are no longer required to collect Tax Collected at Source (TCS) or file GSTR-8 concerning restaurant services for which they pay GST. This change reduces the administrative burden and compliance complexity previously placed on these platforms.  However, it's crucial to note that for goods and services not covered under section 9(5), ECOs must continue to manage TCS and adhere to the existing GST compliance mechanisms.

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. 

• Online Food Sellers: Any business selling goods or services online must register for GST, regardless of how much they earn. Some exceptions exist for small traders under GST law. Previously, individual sellers, cloud kitchens, and restaurants using online platforms like Swiggy or Zomato needed their own GST registration. 

But starting January 1, 2022, these platforms took over the responsibility of handling GST. This change means these sellers don't need to register separately. However, if a restaurant's total sales, both online and offline, cross the GST threshold, they must register for GST.

• Aggregators and E-Commerce Operators: Platforms facilitating food delivery, such as Zomato and Swiggy, collect GST directly from customers. They then pay this tax to the government. Restaurants offering services through these platforms don't need to charge GST on sales made online.

Exceptions and Thresholds

While GST registration is generally not mandatory for food sellers operating on e-commerce platforms, there are specific exemptions and schemes available for offline businesses:

• Offline Business Schemes: While food sellers on online platforms don't automatically need a GST registration, offline sellers have some exceptions.
• Turnover-Based Exemption: Offline sellers not using online platforms might not need a GST registration if their yearly sales are under ₹20 lakh for goods (or ₹10 lakh in some states). But, if total sales, combining online and offline, go over ₹20 lakh, they must register for GST.

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:

• Restaurant Services:
  • Dine-In Services: GST is charged as follows:

S No	Type of Restaurants	GST Rate
1	Food supplied or catering services by Indian Railways/IRCTC	5% without ITC
2	Standalone restaurants, including takeaway	5% without ITC
3	Standalone outdoor catering services or food delivery service	5% without ITC
4	Restaurants within hotels (Where room tariff is less than Rs 7,500)	5% without ITC
5	Normal/composite outdoor catering within hotels (Where room tariff is less than Rs 7,500)	5% without ITC
6	Restaurants within hotels (Where room tariff is more than or equal to Rs 7,500)	18% with ITC
7	Normal/composite outdoor catering within hotels (Where room tariff is more than or equal to Rs 7,500)	18% with ITC

• Takeaway and Delivery: Takeout meals and food delivery services offered over the counter 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. However, the GST is to be collected by the ECO and deposited to the Government.
• GST on delivery fees: The current GST rate on delivery fees charged by online food delivery platforms like Swiggy and Zomato stands at 18%. This rate has been a point of contention, given that it significantly increases the overall cost for consumers.

In response to industry feedback and concerns about the high GST rate, the Finance Ministry is reportedly considering a proposal to reduce the GST on online food delivery fees from 18% to 5%.  This potential change is aimed at simplifying the tax structure and making online food delivery services more affordable for consumers. The move is expected to not only benefit customers but also enhance compliance and increase the tax base by making the pricing more transparent and manageable for service providers.

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.

Recent GST Demand on Zomato: A Case Study on Compliance The Indian GST department has recently levied a substantial demand on Zomato, one of the leading food delivery platforms, amounting to approximately Rs. 800 crore.  This demand consists of Rs. 401.7 crore in unpaid taxes, with an additional equivalent amount in fines, summing up to more than four times Zomato's profit for the July-September 2024 quarter. Context and Implications: This financial imposition by the Thane Commissionerate covers alleged non-compliance with GST regulations on delivery charges collected between October 2019 and March 2022. The core of the dispute lies in the taxability of delivery fees, which Zomato collects from customers and supposedly passes directly to the delivery partners. The GST authorities, however, treat these fees as part of Zomato's taxable revenue, asserting that Zomato should pay 18% GST on these amounts. Financial Impact on Zomato: The demand is notably substantial when compared to Zomato's recent earnings, indicating a severe impact on its financial health. This situation not only stresses the importance of meticulous compliance with GST laws for e-commerce platforms but also highlights the complexities of tax regulations concerning gig economy operations. Broader Industry Impact: This case is a critical reminder for all companies in the digital commerce space about the rigorous nature of tax obligations and the need for clear financial operations. As platforms continue to navigate these regulatory waters, this development could prompt a reevaluation of how delivery charges are handled and disclosed for tax purposes. Looking Ahead: The resolution of this issue will be pivotal, potentially setting precedents for how similar cases are approached by tax authorities in the future. It also underscores the need for explicit guidelines and possibly legislative review to clarify the tax obligations of e-commerce platforms related to various service charges

 

 

Filing GST Returns: Forms, Timelines, and Reconciliation for Online Food Sellers

Online food sellers, including those operating through e-commerce platforms, must diligently manage their GST filings to stay compliant and avoid penalties. 

Key forms include GSTR-1, GSTR-3B, and GSTR-9, each with specific deadlines:

• GSTR-1: This form details outward supplies and must be filed monthly by the 11th of the following month. It captures sales transactions and is critical for accurate tax liability assessments.
• GSTR-3B: A monthly summary return that consolidates taxable supplies, due by the 20th of the subsequent month. This form is essential for reporting a concise overview of GST liabilities and credits.
• GSTR-9: The annual return that summarizes the data provided monthly, due by December 31 of the following financial year. It serves as a yearly wrap-up of GST activities and adjustments.

Regarding the specific handling of transactions by e-commerce operators (ECOs), it's important to note that they cannot report restaurant supplies as inward supplies in their GSTR-3B filings. 

Since ECOs are facilitators, not the final recipients of these services, they must not include these transactions as inward supplies, which could otherwise suggest they are consuming the services themselves. 

This distinction helps maintain clarity in tax reporting and ensures that the GST collected is correctly attributed and remitted by the responsible party, avoiding misreporting and potential compliance issues.

Simplified Taxation and Invoicing for Online Food Sales

In the new GST landscape, e-commerce operators like Swiggy and Zomato are now responsible for issuing invoices and collecting GST directly from consumers. This shift, effective for services under section 9(5) of the GST Act, streamlines processes by shifting tax duties from restaurants to platforms. 

Restaurants must update their e-invoicing systems to integrate smoothly with these changes, ensuring compliance and enhancing operational efficiency. 

This streamlined approach allows restaurants to focus more on culinary quality and customer service, while the platforms handle the complexities of GST compliance.

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

1. Do e-commerce operators (ECOs) need a separate GST registration to handle restaurant services?

Answer: No, e-commerce operators who are already registered under GST do not need a separate registration to manage taxes for restaurant services provided through their platforms. 

Since they are already registered under the general provisions of the CGST Rules, 2017, this existing registration covers the payment of tax on restaurant services as outlined in section 9(5) of the CGST Act. This means they can use their current GST registration to comply with tax requirements without additional registrations.

2. Are e-commerce operators (ECOs) responsible for paying GST on restaurant services provided by unregistered businesses?

Answer: Yes, e-commerce operators are required to pay GST on all restaurant services that they facilitate, even if those services are provided by unregistered businesses. 

This responsibility ensures that all restaurant services sold through these platforms are compliant with GST regulations, regardless of the registration status of the actual service provider.

3. Are e-commerce operators (ECOs) required to reverse their Input Tax Credit (ITC) due to GST payments on restaurant services?

Answer: No, e-commerce operators do not need to reverse their Input Tax Credit (ITC) when they pay GST on restaurant services. ECOs, who act as intermediaries providing a platform for restaurants and customers, typically use ITC to offset GST liabilities for the services they provide directly, such as commission or fees. 

This ability to claim ITC remains unchanged even though they are responsible for the GST on restaurant services provided through their platform. It's important to note that while ECOs can use ITC for other services, the GST payable on restaurant services must be settled in cash and cannot be offset using ITC.