Food delivery apps will not get input tax credit under the new GST regime as of January 1


Ecommerce operators (ECOs) in the food delivery space like Swiggy and Zomato will not get input tax credits (ITCs) under the new GST mechanism that goes into effect on January 1 . This will be included in the frequently asked questions (FAQ) which should be released soon.

“We have had representations on ITC eligibility and other matters. Since restaurants paying GST at the rate of 5% are not eligible for ITC and only the burden of filing GST has changed, there is no possibility of ITC for food delivery platforms. A senior government official said. Activity area.

The GST Council, at its September 17 meeting, recommended that food delivery CEOs be responsible for paying taxes. Currently, it is the restaurants that pay the taxes. The government has already made it clear that this is not a new tax and will not affect customers. The tax rate will continue to be 5 percent, as the finance ministry has already notified the change. However, this will not apply in the case of catering services provided by luxury hotels which declare the rate for any accommodation unit of at least 7,500 per day.

The GST Council recommended a change based on a suggestion from a Supplier / ECO e-commerce sector study dealing with food delivery. In the existing system, these applications are registered as withholding tax collectors (TCS). One of the reasons for such a change, officials said, is the committee’s observation that there is no mandatory GST registration control by these food technology companies and that unregistered restaurants are s ‘supply through them.

Estimated loss of income

It can be noted that although the tax rate is low, missed income is significant as food delivery is a thriving and high volume business. The committee estimated the loss of income at around 2,000 crore.

Another official said Zomato and Swiggy’s data was analyzed for the period October-December 2020 for the Haryana. For Zomato, it was found that the difference in the taxable turnover of suppliers where TCS was deducted by Zomato was greater than the turnover reported by the suppliers – 101 crore. Therefore, the tax evasion amounts to around 5.2 crore. In the case of Swiggy, the difference in taxable turnover for suppliers where TCS was deducted by Swiggy was greater than the turnover reported by suppliers by ₹ 91 crore. The tax evasion stood at 4.5 crore yen, he said, adding that there was a suggestion for a new mechanism for taxes at the time of procurement.

Smita Singh, partner of Singh & Associates, said that due to the new mechanism, restaurants will also be required to register, as online sellers do. “Restaurants will have to bear an additional compliance burden and they will not only have to report on their day-to-day activities, but also now have separate books of account for activities carried out through platforms such as Swiggy, Zomato. For aggregators, it will also increase the burden of complying with collecting and accounting for taxes on behalf of restaurants, ”she said.

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