Online food delivery platforms such as Swiggy and Zomato will have to pay five per cent goods and services tax starting Saturday (January 1) as the changes to GST rules will come into effect. These changes are based on the decision taken at the 45th GST council meeting on September 17, 2021, to crack down on restaurants that don't pay taxes.

The services offered by these platforms and cloud kitchens and central kitchens were covered under ‘restaurant service’ and would attract 5% GST without any input tax credit (ITC), the Union finance ministry had said after the meeting.

What changes now?

With the new rules, food delivery platforms are expected to pay 5% GST on restaurant services that they provide. Previously, the restaurants themselves collected and deposited the tax to the government, but now the delivery platforms will be responsible for paying them to the taxmen. 

This is being done as the government found that several restaurants listed on the food delivery platforms were evading taxes, even though they were being collected from the customers.

Why the changes ?

“As ‘restaurant service’ has been notified under section 9(5) of the CGST Act, 2017, the electronics commerce oprator (ECO) shall be liable to pay GST on restaurant services provided, with effect from the 1st January, 2022,” a circular from the finance ministry said.

“Accordingly, the ECOs will no longer be required to collect TCS and file GSTR 8 in respect of restaurant services on which it pays tax in terms of section 9(5),” it added.

Are customers paying a new tax ?

The finance ministry has clarified that the customers who avail the services of these platforms will not be paying any new tax. The 5% GST would only be deposited through a different route to the government.

Union finance minister Nirmala Sitharaman had said that the customers would not be paying any new taxes due to the changes, according to a report by Livemint.

Implications for small eateries and compliance burden

The decision is likely to affect smaller players, restaurants that are earning under ₹20 lakh per annum, according to the National Restaurant Association of India (NRAI). The body said that these restaurants were not filing GST previously, however, will now need to do so as the move will bring them under the government’s taxnet.

Further, it also said that the compliance burden on restaurants would now increase as they still need to collect GST for dine-ins, takeaways and own delivery while not having to collect taxes for orders through delivery platforms.