Impact of GST Collection on Restaurants and Food Delivery Apps

Introduction

As of January 1, 2022, food delivery applications will be responsible for collecting a 5% Goods and Services Tax (GST) on behalf of restaurants for deliveries made through their platforms. This initiative by the government aims to include more restaurants in the GST regime.

Impact on Smaller Restaurants

Tax experts indicate that this development will significantly affect smaller restaurants with an annual turnover of less than ₹20 lakh. Previously, these establishments were not obligated to pay GST. With this amendment, they will now be required to register for GST, similar to e-commerce sellers.

Compliance Requirements

Additionally, restaurants will face increased compliance responsibilities, as they must maintain two distinct sets of accounting records:

• One for their regular business operations
• Another for transactions processed through food delivery platforms

Implications for Food Aggregators

This new scheme adds a layer of compliance for food aggregators, as they must manage accounting and tax collection on behalf of the restaurants. Consequently, some restaurants may choose to withdraw from these platforms due to the increased administrative burden.

Customer Impact

It is important to note that no new tax has been implemented; therefore, customers will continue to pay 5% GST on their online food orders as they did previously.

Clarification on Input Tax Credits

Nonetheless, this change may lead to confusion regarding the applicability of input tax credits. Clarity from the government will be necessary to address concerns raised by food aggregators and ensure a smooth transition.

Conclusion

In summary, the introduction of GST collection by food delivery apps represents a significant shift in the tax obligations for both restaurants and food aggregators. While it aims to streamline compliance within the industry, the potential impact on smaller restaurants warrants close attention.