At Filingwala.com we beleive that the advent of food delivery platforms like Swiggy and Zomato has transformed the restaurant industry in India. From small roadside eateries to posh fine-dining establishments, every restaurant today relies on food aggregators for increased orders and revenue.
But while Zomato and Swiggy have been a boon for both restaurants and customers, they’ve also created some confusion around the applicability of GST. Filingwala.com experts have created this in-depth article, where we analyze how GST impacts food aggregators, restaurants, consumers and the solutions.
Table of Contents:
- Overview of the Restaurant Industry in India
- How Do Food Aggregators Like Swiggy and Zomato Work?
- GST Rules for Food Aggregators
- Impact of GST on Swiggy, Zomato and Other Food Apps
- How GST Affects Restaurants Using Food Delivery Platforms
- Effect of Food Aggregator GST on End Consumers
- Key Takeaways on GST and India’s Food Services Industry
The Restaurant Industry Landscape in India
The Indian restaurant industry has witnessed exponential growth in the last decade, especially with the rise of nuclear families, millennial diners, and busy work lifestyles.
Some key highlights:
- Size of India’s food services industry expected to grow from ₹4.2 lakh crore in 2017 to ₹8.0 lakh crore by 2022.
- Organized food services account for ₹99,000 crore, or around 35% of the overall market.
- The unorganized sector including small street vendors and dhabas make up the rest.
- A CAGR of 10% expected over the next 5 years.
- New restaurant openings growing at 15% year-on-year.
This remarkable growth has been enabled by food tech startups like Swiggy and Zomato that connect customers with their favorite restaurants via online delivery and table reservations.
How Do Food Aggregators Like Swiggy and Zomato Work?
Food delivery platforms have an easy-to-use app interface allowing users to:
- Browse menus and food options across different cuisines and restaurants in their city.
- Place orders seamlessly and make payments via multiple options.
- Track the delivery in real-time right till the food arrives at your doorstep.
For restaurants, Zomato and Swiggy provide the technology to manage incoming orders, as well as the delivery fleet to ensure faster and timely fulfillment.
Key advantages provided by food aggregators:
- Convenience of dining at home with wider cuisine choices.
Attractive discounts and offers on food orders.
- Streamlined ordering and payments.
- Live order tracking for a superior user experience.
- Wider reach and visibility among tech-savvy customers.
- Higher revenue and order volumes.
- Marketing and promotions assistance.
- Data-driven insights into menu performance.
GST Rules for Food Aggregators in India
Under GST guidelines, food aggregators are categorized as ‘e-commerce operators’. This means they are liable to collect and deposit GST on restaurant commissions they charge:
- 18% GST is applicable on the commission a food delivery app earns per order.
- Tax calculated on gross commission amount before deducting any expenses.
- Input tax credit can be claimed on such commissions.
Many restaurants earlier did not pay any indirect tax on the commission they shared with aggregators. With Swiggy and Zomato now obligated to collect GST, it has increased tax compliance.
Impact of GST on Swiggy, Zomato and Other Food Apps
For food delivery apps, GST has resulted in enhanced tax liability and compliance requirements:
- As e-commerce operators, apps need to compulsorily register, file returns and pay 18% GST on commissions.
- GST is calculated on their gross commission, increasing the tax incidence.
- Additional resources required for managing registration, filings and integrating GST systems.
- Rise in accounting costs due to multiple GST rates across different food items.
Apps are also concerned that GST may prevent small restaurants from agreeing to list on the platform. Overall, GST has increased the operational costs of running a food delivery business.
How GST Affects Restaurants Using Food Delivery Platforms
For organized restaurants already registered under GST, the impact is minimal. They now only share the post-GST commission with aggregators. But small unregistered food vendors are affected:
- Unregistered players now need to compulsorily pay 18% GST on the commission they share. This increases compliance costs.
- Narrow profit margins of small restaurants get impacted due to increased tax incidence.
- Accounting systems need upgrading to handle multiple GST rates.
- Loss of competitive edge vis-a-vis organized chains, as they can claim input tax credits.
However, GST also helps unorganized players come under the tax net and makes the system more transparent. They may benefit from availing input credits.
Effect of Food Aggregator GST on End Consumers
For end consumers, the impact of GST on food delivery apps and restaurants has been negligible so far:
- GST incidence only on the commission portion, not the entire food bill.
- Aggregators have managed to absorb the added GST burden so far, avoiding increase in delivery fees.
- Most restaurants have also managed to bear the extra indirect tax cost due to higher volumes generated via online ordering.
However, some marginal price increases may be passed on to consumers in the long run. But overall, the convenience, discounts and choices offered by food delivery platforms are expected to offset this.
Key Takeaways on GST and India’s Food Services Industry
To conclude, GST has been a mixed bag for India’s booming food services sector:
- Food aggregators have seen increased tax and compliance burden.
- Unorganized players reluctant to list on Zomato and Swiggy due to GST costs.
- But larger organized restaurants mostly remain unaffected.
- Consumers largely protected from major cost inflation so far.
As the industry evolves, smaller eateries may also realize the benefits of formalization and increased reach offered by delivery apps and adjust to the new GST regime.
The implementation of GST has brought about many changes in tax compliance and reporting for food delivery platforms, restaurants, and the entire food services industry. While this article covers the major impacts, the full implications may be complex for businesses to handle on their own.
We recommend you consult GST experts at Filingwala to get personalized advice and assistance with GST registration, return filing, input tax credits, reconciliations, and other compliance aspects for your restaurant or food tech business. Their team can hand-hold you through the transition to GST and ensure full compliance at affordable costs. Reach out to Filingwala today to understand how GST affects your business and start leveraging professional help.