As of now, these companies pay GST only on the amount they charge over and above the cost of food. Going ahead however GST will apply on the total price of the order.
Food delivery platforms
and Swiggy could face Goods and Services Tax (GST) related complications on tips given to delivery boys, surge fee, delivery fee and packaging charges charged to customers.
Going ahead the additional monies levied on customers could also face GST for the platforms, say tax experts.
Not just that, if the tax is paid at 5% similar to what restaurants pay, both Swiggy and Zomato will have to bear a higher cost.
Both the companies in the past one week have also reached out to their tax advisors to seek clarity around this.
The GST council has said that food delivery platforms such as Swiggy and Zomato should cough up 5% GST just like restaurants.
The tax for the platforms will come into effect from January next year.
This would mean that Swiggy and Zomato will have to slap a 5% tax on the total cost of food.
The question however is whether this would also apply to additional money charged in terms of surge fee, delivery fee and packaging charges.
Speaking to ET, a person with direct knowledge of the matter said, "This point (GST on surge fee, delivery cost etc) was being discussed. The company is looking to charge 18% GST instead of 5% GST on this cost, so that we can avail the input tax credit."
Restaurants are charged 5% GST but they do not get input tax credit on the amount.
Input tax credit is basically GST paid on input services or raw materials that can be set off against a certain kind of future tax liability.
This means that the GST paid becomes pure cost. This would also be the case for Swiggy and Zomato if they pay 5% GST.
"The food delivery platforms have huge costs in terms of technology and rents and they would want input tax credit. The thinking is that the tax department too would not take objection when they are paying 18% GST instead of 5%," the person close to the development said.
Then there is a question of what happens to tips that customers willingly give to delivery boys.
As far as tips are concerned, both the delivery start-ups will have to demonstrate to the tax department that they are just a "pass through" between the delivery boys and the customer and each and every penny is being handed over to the delivery boys.
"The tips paid by the customers to the delivery boys do not represent any service with respect to the delivery of food and must not be subject to tax as there is an absence of any activity," said Abhishek A Rastogi, partner at Khaitan & Co.
Swiggy and Zomato did not respond to an ET query.
As of now, these companies pay GST only on the amount they charge over and above the cost of food. Going ahead however GST will apply on the total price of the order.
ET had reported earlier that the restaurant industry is concerned about how the GST on Zomato and Swiggy would be implemented and is planning to reach out to the government on the matter.
The companies want clarity around how the GST would be levied and whether this could lead to "tax cascading" or problems in claiming input tax credits, ET wrote on September 23.