Goods and services tax (GST) is the primary indirect tax that is levied on the supply of goods and services. The GST regime in India is a comprehensive, uniform, multi-stage, destination-based tax that is levied on every value addition. GST was first introduced in India on 1 July 2017, and is similar to value added taxes in many countries.
The GST regime in India has undergone several amendments since its introduction in July 2017. Effective 1 January 2022, the Goods and Services Tax Council has introduced some amendments that will impact e-commerce operators (ECO) in the food sector.
Pursuant to the amendment, ECOs that deliver and distribute food items from restaurants will be required to collect GST directly from the customers and deposit it with the Indian Government. Prior to the amendment, restaurants used to levy GST, and ECOs used to transfer the entire invoice amount, including GST collected from the customers to the food suppliers (i.e., restaurants and eateries), which in turn used to pay the applicable GST to the Government. Restaurants and outlets that sell food products and services directly to customers dining in stores (or through their own online portals) will have to continue to collect GST from such customers and deposit the tax with the Government. Restaurants are now exempted from the obligation only when foods products are sold through ECOs.
Through this amendment, the Government intends to avoid GST leakages that exist in the distribution system. Prior to the amendment, certain unregistered restaurants, including smaller outlets with an annual turnover less than INR 2 million) were not required to collect GST since they were not covered under the GST laws owing to small scale of operations. As a result, customers of such small restaurants did not pay GST. Shifting the onus to collect and pay GST from restaurants to ECOs will is aimed at helping the Indian Government collect tax from customers of such unregistered restaurants, who earlier did not pay any tax. The Government also hopes to better manage and enforce GST laws as it reduces the number of entities it surveys and deals with.
The amendment will increase compliance burden on ECOs, which may be required to upgrade the accounting and invoicing processes. However, for any outlet which accepts direct orders through their own website, or social media or via phone, or through walk-in diners and does not use ECOs or other distribution networks for delivering the food products and services to their customers, the obligation to comply with GST laws remains.
Srijoy Das, IDI Country Expert for agency & distribution in India