GST Compliance for Online Food Sellers: Your Comprehensive Guide

Why GST Matters for Online Food Sellers

The online food delivery market has seen explosive growth, projected to reach ₹1.2 trillion (approximately $16 billion) by 2024 in India alone with a CAGR of 20% from 2021 to 2026. With platforms like Swiggy and Zomato driving this demand, the landscape for food sellers has evolved significantly.

This rapid expansion has made GST compliance increasingly critical for online food sellers, including delivery services, takeout options, cloud kitchens, e-reservations and e-payments..

Moreover, around 80% of food delivery businesses report challenges related to GST compliance, which can lead to significant financial repercussions.

Recent updates to GST laws have added layers of complexity, making it essential for sellers to stay informed. Ensuring compliance not only helps avoid legal troubles but also enhances business credibility and consumer trust.

Taking your food business online? Get your GST registration right from the start and avoid compliance issues as you grow.

GST Registration Requirements for Online Food Sellers

Understanding the GST Framework for Online Food Sellers

The GST Council, recognizing the unique challenges in the digital food service sector, revised the GST framework under section 9(5) of the CGST Act during their 45th meeting. 

As per these revisions, the responsibility of paying GST for restaurant services delivered through e-commerce platforms now falls on the operators themselves, effective from January 1, 2022. This significant move simplifies the tax burden on small food service providers and ensures a more centralized collection point for GST.

Who Needs to Register for GST?

Under the GST law in India, online food sellers, including those operating through platforms like Swiggy and Zomato, are required to register for GST if they meet certain criteria. 

• Online Food Sellers: Any business selling goods or services online must register for GST, regardless of how much they earn. Some exceptions exist for small traders under GST law. Previously, individual sellers, cloud kitchens, and restaurants using online platforms like Swiggy or Zomato needed their own GST registration. 

But starting January 1, 2022, these platforms took over the responsibility of handling GST. This change means these sellers don't need to register separately. However, if a restaurant's total sales, both online and offline, cross the GST threshold, they must register for GST.

• Aggregators and E-Commerce Operators: Platforms facilitating food delivery, such as Zomato and Swiggy, collect GST directly from customers. They then pay this tax to the government. Restaurants offering services through these platforms don't need to charge GST on sales made online.

Exceptions and Thresholds

While GST registration is generally not mandatory for food sellers operating on e-commerce platforms, there are specific exemptions and schemes available for offline businesses:

• Offline Business Schemes: While food sellers on online platforms don't automatically need a GST registration, offline sellers have some exceptions.
• Turnover-Based Exemption: Offline sellers not using online platforms might not need a GST registration if their yearly sales are under ₹20 lakh for goods (or ₹10 lakh in some states). But, if total sales, combining online and offline, go over ₹20 lakh, they must register for GST.

GST is only one part of compliance for an online food business. You also need the appropriate FSSAI registration or licence based on your business size and activities. Our experts can help you choose and apply correctly.

GST Rates on Food Products: A Breakdown

GST Rates for Various Food Categories and Services

Understanding GST rates is crucial for online food sellers, as different types of food items and services carry distinct tax rates. Here’s a simplified breakdown:

• Restaurant Services:
  • Dine-In Services: GST is charged as follows:

• Takeaway and Delivery: Takeout meals and food delivery services offered over the counter are also subject to 5% GST, with no ITC eligibility. This uniform rate aims to simplify compliance for restaurant owners and delivery aggregators alike.
• Cloud Kitchens: Cloud kitchens—businesses operating exclusively for online orders—are taxed at a 5% GST rate. Similar to dine-in and delivery services, cloud kitchens are not eligible for ITC claims under this rate structure. However, the GST is to be collected by the ECO and deposited to the Government.
• GST on delivery fees: The current GST rate on delivery fees charged by online food delivery platforms like Swiggy and Zomato stands at 18%. This rate has been a point of contention, given that it significantly increases the overall cost for consumers.

By knowing these rates, online food sellers can ensure they’re charging customers the right GST amount and maintaining compliance, especially when offering varied services like dine-in, takeaway, and delivery.

Filing GST Returns: Forms, Timelines, and Reconciliation for Online Food Sellers

Online food sellers, including those operating through e-commerce platforms, must diligently manage their GST filings to stay compliant and avoid penalties. 

Key forms includes GSTR - 1, GSTR - 3B,  and GSTR - 9 each with specific deadlines:

• GSTR-1: This form details outward supplies and must be filed monthly by the 11th of the following month. It captures sales transactions and is critical for accurate tax liability assessments.
• GSTR-3B: A monthly summary return that consolidates taxable supplies, due by the 20th of the subsequent month. This form is essential for reporting a concise overview of GST liabilities and credits.
• GSTR-9: The annual return that summarizes the data provided monthly, due by December 31 of the following financial year. It serves as a yearly wrap-up of GST activities and adjustmsummarisesents.

Regarding the specific handling of transactions by e-commerce operators (ECOs), it's important to note that they cannot report restaurant supplies as inward supplies in their GSTR - 3B Fillings.

Since ECOs are facilitators, not the final recipients of these services, they must not include these transactions as inward supplies, which could otherwise suggest they are consuming the services themselves. 

This distinction helps maintain clarity in tax reporting and ensures that the GST collected is correctly attributed and remitted by the responsible party, avoiding misreporting and potential compliance issues.

Simplified Taxation and Invoicing for Online Food Sales

In the new GST landscape, e-commerce operators like Swiggy and Zomato are now responsible for issuing invoices and collecting GST directly from consumers. This shift, effective for services under section 9(5) of the GST Act, streamlines processes by shifting tax duties from restaurants to platforms. 

Restaurants must update their e-invoicing systems to integrate smoothly with these changes, ensuring compliance and enhancing operational efficiency.

This streamlined approach allows restaurants to focus more on culinary quality and customer service, while the platforms handle the complexities of GST compliance.

Conclusion

GST compliance for online food sellers depends on their turnover, sales channels and the nature of supplies made through platforms such as Swiggy and Zomato. Maintaining accurate invoices, applying the correct GST rates and filing returns on time can help food businesses avoid penalties and operate smoothly. Need help managing your GST requirements? Connect with Startup Movers for expert guidance.