Understanding Zomato’s GST Policy: Detailed Explanation and Legal Context
Zomato, a renowned platform for food delivery, commonly charges GST (Goods and Services Tax) on the total amount of a transaction rather than just the service charge, even if the restaurant is not GST registered. This sometimes leads to confusion among customers and service providers. This article explains the legal and financial reasons behind Zomato's decision and provides insights into the broader implications for the food delivery industry.
Overview of GST in Food Delivery
Goods and Services Tax (GST) is a value-added tax levied on the supply of goods and services in India. According to the Goods and Services Tax Act, 2017, GST is applicable to the invoiced value of goods, irrespective of whether the goods are procured from a registered or unregistered entity.
Why Does Zomato Apply GST on Total Amount?
Zomato vs. Service Provider: Zomato is often mistaken as a service provider, similar to how other platforms like Uber or Ola function. However, from a legal perspective, Zomato is supplying goods, not just services. This distinction is crucial and forms the basis for why Zomato applies GST to the total amount rather than just the service charge.
Legal Context: According to the DGFT (Directorate General of Foreign Trade), the "delivery charge" amount charged by Zomato to facilitate the delivery of food is considered a taxable event. Even though Zomato is merely facilitating the supply, they are furthering their business platform, thus leading to the application of GST on the total amount.
How GST Applies to Delivery Charges
Current GST Notification: As of January 1, 2022, the government notification under Section 95 of the CGST Act, 2017, mandates e-commerce operators like Zomato to collect GST on the total amount paid to get food delivered from a restaurant.
Liability for Payment: Zomato is required to discharge GST on the total amount whether or not the restaurant is registered under GST laws. This ensures that even if a restaurant is not registered, Zomato must still collect GST, which is then paid to the Central Board of Indirect Taxes and Customs (CBIC).
Input Tax Credit: If a restaurant is actually registered under GST, Zomato can claim input tax credit (ITC) for the GST it has paid to the restaurant. This process allows for a more balanced financial management while ensuring compliance with tax laws.
Practical Implications
Zomato as a URD Purchaser: For Zomato, the bill from the restaurant is treated as a URD (Unregistered Related Dealers) purchase. This means that the entire transaction amount is subject to GST.
Swiggy and Other E-commerce Operators: Similar to Zomato, platforms like Swiggy are responsible for collecting 5% GST from customers and remitting it to the government. This regulatory change ensures that the financial burden of GST is carried by the e-commerce operator, promoting transparency and ensuring better tax compliance.
Conclusion
Understanding the nuances of GST and its application in the context of food delivery platforms like Zomato is crucial for both customers and service providers. While it may seem counterintuitive, the legal framework mandates that Zomato collects GST on the total amount rather than just the service charge. This approach, although complex, ensures compliance with tax laws and promotes fair tax distribution across the supply chain.
For businesses like Zomato, this policy ensures that they can operate within the regulatory framework, while for customers, it provides clarity on the taxes they are paying and the process by which these taxes are collected and remitted.
Key Takeaways:
Zomato is supplying goods, not just services, thus applicable to GST. Delivery charges are considered a taxable event due to facilitated delivery on the platform. Zomato must collect GST on the total amount, regardless of the restaurant's GST status. Swiggy and other e-commerce operators must collect and remit 5% GST from customers.By understanding these principles, stakeholders in the food delivery industry can navigate the complexities of GST more effectively and ensure compliance with tax regulations.