Food delivery charges may attract 18% GST. Find out how this impacts Zomato, Swiggy, and consumers. Stay informed with the latest updates.
GST Implications for Food Delivery Charges
The Directorate General of GST Intelligence (DGGI) is evaluating a significant change in the taxation of delivery charges on food orders, potentially impacting platforms like Zomato and Swiggy. The current rate of 5% GST on restaurant services may increase to 18% GST when delivery charges are bundled with food supplies.
Why the Change?
The DGGI claims that delivery charges combined with food constitute a composite supply, justifying the higher tax rate. This interpretation led to GST demands of ₹400 crore for Zomato and ₹350 crore for Swiggy for transactions from July 2017 to March 2023.
Impact on Consumers and Platforms
- Higher Costs for Consumers: If the proposal is accepted, platforms might pass the higher tax burden to customers.
- Increased Compliance: Food delivery companies will face stricter GST compliance and operational complexities.
- Price Adjustments: Companies may revise their pricing strategies to absorb or distribute the tax changes.
Current Status
The GST fitment committee has reviewed the matter but hasn’t reached a final decision. The 55th GST Council meeting on December 21 in Jaisalmer is expected to address this issue.
Relevant Case Laws and Precedents
- Composite Supply and GST Rates: The case of Bharat Sanchar Nigam Ltd. v. Union of India (2006) laid down the principles for composite supplies under GST. This ruling may provide insights into the classification of delivery charges.
- Bundling of Services: The decision in CCE v. FedEx (2020) highlighted the importance of identifying whether services are naturally bundled to determine the tax treatment.
What Should Stakeholders Do?
- Stay Updated: Keep an eye on announcements from the GST Council meeting.
- Evaluate Pricing Models: Businesses should prepare for potential adjustments in pricing and compliance.
- Consumer Awareness: Customers should understand the tax breakdown to make informed choices.
The proposed change in GST rates for food delivery charges is still under discussion. If implemented, it could reshape the food delivery ecosystem by increasing consumer costs and compliance requirements for platforms. Stakeholders are advised to stay informed and adapt accordingly.
Stay updated on tax changes with efiletax for clear insights and practical advice.