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Delivery services through e-commerce operators such as Zomato, Swiggy and quick commerce companies like Blinkit, Zepto are set to cost more as they will face a 18 per cent GST on delivery charges beginning September 22 after the decision taken by the Goods and Services Tax (GST) Council in its 56th meeting held on Wednesday. While this clarifies the long-pending legal stance about taxation of such services and will reduce litigation, for consumers, ordering items through such apps is likely to get costlier as the e-commerce operators are likely to hike delivery and platform charges.
Food delivery apps will now levy 18 per cent GST on delivery charge along with 5 per cent GST on restaurant services as against the levy of 5 per cent on restaurant services and platform charges at present. Quick commerce companies are also likely to face 18 per cent GST on delivery charge hereon as against just handling charges currently.
Delivery companies are likely to pass on the hit from the 18 per cent levy to the consumers. A senior executive at a food delivery company said that while they were assessing the hit on revenues due to this, initial calculations show that it could cause them an annual hit of upwards of Rs 200 crore. “We would have no other option but to pass on that hit to customers, so you can expect delivery fees going up, or even delivery partner earnings taking a hit. The cost of food could also go up,” the executive told The Indian Express.
What is the GST Council’s recommendation for delivery apps?
In its recommendations after the GST Council’s 56th meeting, the panel noted that the supply of local delivery services through electronic commerce operators would be notified under Section 9(5) of the Central GST (CGST) Act, which so far has been a grey area and a point of contention between GST authorities and delivery companies like Swiggy and Zomato. The Council has recommended 18 per cent as the applicable rate on such services.
Food delivery through electronic commerce operators (ECOs) are segregated into two parts: restaurant services and delivery services. Restaurant services supplied through ECOs are at present subject to 5 per cent GST without input tax credit.
Restaurant services supplied through ECOs were brought under section 9(5) of CGST Act, 2017 with effect from January 1, 2022 on the recommendations of the 45th GST Council meeting held in September 2021. However, payment of tax on the service of delivery in relation to restaurant services supplied through an ECO was not notified explicitly.
Now, with the GST Council’s recommendation to notify the services under Section 9(5), platforms like Swiggy and Zomato will have to pay a 18 per cent GST on the delivery charges they collect from consumers, even though, in the past they have maintained that they only collect delivery fees on behalf of delivery workers and it is not part of their revenue, and so, they should not be expected to pay GST on the service, which is fulfilled by a delivery worker, who is an independent vendor. The recommendation by the GST Council will also impact delivery through quick-commerce companies. However, the recommendation is not going to impact e-commerce companies like Amazon and Flipkart, where delivery is ancillary to goods supply rather than a standalone service.
Abhishek Jain, Indirect Tax Head & Partner, KPMG, said with the coverage of delivery services under Section 9(5), any such supplies made through e-commerce platforms to customers would specifically trigger GST liability. “This move helps settle the ambiguity that existed around the taxability of such services, shifting the responsibility to these platforms going forward. What will now be interesting to watch is how pending disputes are treated, especially for the period prior to this clarification, when a similar provision did not exist,” he added.
What has been the contention about GST on delivery services?
So far, the companies’ contention was that they do not provide delivery services themselves, but the delivery workers; the platforms simply collect the delivery charge from customers on behalf of delivery workers, and as a result should have no liability to pay GST on the service. For instance, in December 2023, Zomato received a Rs 401.7 crore show-cause notice for delivery charges collected between 29 October 2019 to 31 March 2022.
However, in response, the company said that it was “not liable” to pay any tax on the delivery charges, “The delivery charge is collected by the company on behalf of the delivery partners. Further, in view of the contractual terms and conditions mutually agreed upon, the delivery partners have provided the delivery services to the customers and not the company.”
“This is also supported by opinions from our external legal and tax advisors. The Company will be filing an appropriate response to the show cause notice,” Zomato had said in a disclosure statement at the time.
The 18 per cent GST rate for delivery also became a contentious point for these e-commerce food delivery companies as several other food companies, such as pizza chains, who have their own delivery service have been charging 5 per cent GST for delivery of items from their restaurants. “This was flagged by e-commerce companies as a possible market distortion since they were being asked to pay 18 per cent while those having their own food delivery service were charging 5 per cent based on the GST on restaurants,” a person aware of the developments said.
Even as the ECOs and restaurant associations had made representations to the Group of Ministers on Rate Rationalisation about levying 5 per cent GST on food delivery services, the same rate as restaurant services, the recommendation from the GST Council now covers all local delivery services through e-commerce operators. “The GST Council seems to have taken this view because if they would have levied 5 per cent for food delivery, then quick commerce companies would have also asked for similar tax treatment. And since quick commerce companies deal with a variety of goods having varying GST rates from zero to 18 per cent, it would have been tough to define a single GST rate for delivery of those goods. That’s why the 18 per cent GST applicable on delivery services seems to have been extended for both quick commerce and food delivery services,” the person cited above said.
Before Wednesday’s GST Council meeting, this issue of taxability of delivery services provided by delivery partners in relation to the supply of restaurant service through ECOs was taken up for discussion in the previous 55th GST Council meeting held in Jaisalmer in December 2024. During the discussions, several states had asked about the impact of this decision on other similar delivery platforms or quick commerce entities which follow the same delivery methods along with an estimation of revenue implication from such a decision.
It was noted that since a large percentage of the population in big cities avail restaurant services through these platforms, GST on delivery of the same should be levied at 5 per cent. Some states had raised the point that where the same person is providing the restaurant services and the delivery service, it should be treated as a composite supply. However, in cases where separate persons are providing these two services it was suggested to look into the issue in detail.
In the meeting, Uttar Pradesh, West Bengal and Chhattisgarh were of the view that the delivery of food should be charged the same rate as applicable to food, that is, 5 per cent, and that in case of other deliveries also it should be charged similarly whereas the states of Telangana, Haryana, Kerala and Punjab wanted to have a detailed deliberation whereas Karnataka was in partial agreement. It was then decided to refer the issue again to the Fitment Committee for a detailed deliberation and bring it back to the next Council meeting.
