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Food delivery services likely to become costlier soon; here’s why

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Plans are afoot to bring the likes of Swiggy and Zomato as well as cloud kitchens under the GST net. Currently, customers pay GST on the food items but not for the delivery service.

Food delivery services likely to become costlier soon; here’s why
Ordering food online by using platforms like Zomato and Swiggy may get costlier. The Goods and Services Tax (GST) Council will soon decide on bringing these services under the tax net. A proposal regarding this is likely to be taken up at the next meeting of the GST Council scheduled to be held on September 17 in Lucknow.  The meeting will be chaired by Union Finance Minister Nirmala Sitharaman.
The GST Fitment Committee has proposed to treat the app-based online food delivery services at par with restaurants. Currently, unlike restaurants, online food delivery service providers are not under the ambit of GST. The customers pay GST on the food items but not for the delivery service, as per the existing norms.
The Fitment Committee proposal recommends that food aggregators like Zomato and Swiggy, among others, as well as cloud kitchens providing food delivery services should be classified as e-commerce operators and pay GST like the restaurants. The proposal also suggests classifying these food ordering platforms as deemed suppliers or aggregators.
The deemed suppliers can be taxed under two categories: First from the restaurant to e-commerce operators at 5 percent tax without input credit and 18 percent with input credit. The service from e-commerce operators to customers is to be taxed at 5 percent with limited input credit, the proposal suggests.
The second recommendation of the Fitment Committee is to notify the e-commerce operators as aggregators. In this case, the tax rate can be fixed later and e-commerce operators will pay GST for all supplies made for the restaurant service.
Furthermore, there is already a Rs 20 lakh base limit for service providers to get registered under GST. So, the proposal is to include all restaurant services under the category of ‘aggregator’ and e-commerce platforms as ‘aggregators of delivery services.’
If the proposal is cleared by the GST Council, a three-month window will be allowed for all the online service providers to make the necessary changes to their software.