India’s tax panel considering reducing GST on food delivery charges

INDIA – India’s tax panel has announced it is evaluating a proposal to lower the goods and services tax (GST) on food delivery charges from 18% to 5%.

The potential reduction in Goods and Services Tax (GST) for e-commerce food delivery services is set to be discussed at the 55th GST Council meeting on December 21, 2024, in Jaisalmer, Rajasthan.

If approved, the tax cut could lower costs for consumers ordering food via e-commerce platforms, addressing requests from the sector for parity with traditional restaurant services.

The GST Council’s fitment committee has recommended that the change, if agreed, be applied retrospectively from January 1, 2022.

However, e-commerce operators would not be able to claim input tax credit (ITC) under the reduced rate when filing GST returns.

While this change could provide savings for consumers, it may also impact the finances of e-commerce platforms.

The current 18% GST rate offers significant ITC benefits, and a lower rate without the option to claim ITC might increase the overall tax burden for some operators.

The food delivery sector is closely monitoring this situation, particularly after recent GST notices were issued to companies like Zomato. Zomato, in particular, was recently ordered by the tax department to pay INR 8.04 billion ($94.8 million) for non-payment of taxes and penalties between 2019 and 2022.

The tax authorities are seeking INR 4.02 billion ($47.3 million) in unpaid taxes, along with an equal amount as a penalty, a claim that significantly exceeds Zomato’s reported net profit for the July-September 2024 quarter, which was INR 1.76 billion ($20.94 million).

Zomato plans to challenge the charges, asserting that it has a strong legal case backed by external legal and tax advisors.

Both Zomato and its competitor Swiggy are also under investigation for potential antitrust violations, including allegations of favoring certain restaurants on their platforms.

In December 2023, the tax department questioned why Zomato should not face the proposed order and penalty, to which Zomato responded by arguing that it is not liable for taxes on delivery charges, as these are collected on behalf of delivery partners who independently provide the service.

The announcement of the penalty comes alongside Zomato’s ongoing efforts to strengthen its market position.

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