Introduction
The restaurant and food delivery industry in India is under increased scrutiny from the Goods and Services Tax (GST) department. The latest focus is on the packaging charges levied by restaurants, especially those listed on popular delivery platforms like Swiggy and Zomato.
The GST department has issued summons to several restaurants demanding detailed GST records from January 2022 onwards. The investigation centers around whether restaurants have correctly charged and deposited GST on packaging charges collected from customers.
This comes amid growing speculation that the GST Council may soon impose a fresh 5% tax on food delivery apps themselves. In this blog, CaptainBiz, your trusted GST invoicing and compliance platform, explains the implications of this development for restaurants, food apps, and consumers.
Read More: Download CaptainBiz Restaurant Bill App
Understanding GST Structure for Food and Delivery Services
To understand the issue, let’s first break down the current GST treatment of various food services:
| Type of Service | GST Rate | Tax Responsibility |
|---|---|---|
| Dine-in at a restaurant | 5% (without ITC) | Restaurant |
| Takeaway from restaurant | 5% (without ITC) | Restaurant |
| Food via delivery apps (post Jan 2022) | 5% (without ITC) | Delivery App (e.g., Swiggy, Zomato) |
| Packaging charges (separately billed) | Disputed | Restaurant (in most cases) |
The GST Council amended rules in January 2022, shifting the GST responsibility for food orders placed via delivery platforms from restaurants to the platforms themselves. However, this change didn’t clarify how to treat packaging charges—a grey area now under audit.
Read More: Why Order Management Systems Are Key for Restaurants
Why Restaurants Are Being Investigated
The GST department suspects that restaurants are charging customers separately for packaging but not remitting GST on these amounts. Packaging, even if billed separately, is generally considered part of the overall food supply and is liable to GST under existing rules.
Read More: How to Calculate GST on Food Products?
Legal Standpoint:
Under GST law:
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Any amount collected from a customer as part of a composite or incidental supply is subject to tax.
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Packaging, being incidental to food service, should attract the same GST rate as the food.
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If a restaurant charges ₹20 for packaging on a food item, GST must be charged on that ₹20 as well.
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CaptainBiz strongly advises businesses to include such charges in their invoices properly and ensure correct tax reporting to avoid penalties.
Read More: GST Registration Limit for Restaurants
The Dispute: Who Pays GST on Packaging?
The confusion lies in determining who is responsible for paying GST on packaging charges—the restaurant or the food delivery app.
| Stakeholder | Stance on GST Responsibility | Rationale |
|---|---|---|
| Restaurants | Food apps should pay | They collect full payment from customers |
| Food Delivery Apps | Restaurants should pay | Packaging is done by the restaurant, not the platform |
| GST Authorities | Restaurant must pay | Packaging is incidental to food, thus part of service |
Packaging is viewed as a distinct supply, but one closely tied to the food item—thus taxable in the same manner.
New GST on Food Apps? What’s Brewing
Adding to the controversy is a potential plan to impose a new 5% GST on the services provided by food delivery apps themselves.
While not officially confirmed, if introduced, this could apply to delivery fees, platform usage fees, or app commissions—which are currently either untaxed or taxed inconsistently.
CaptainBiz recommends that both platforms and restaurants closely monitor this development and prepare for possible pricing revisions and invoicing updates.
Illustration: Billing Breakdown Example
Here’s how a typical food delivery bill might look:
| Item | Amount (₹) |
|---|---|
| Food Price | ₹200 |
| Packaging Charges | ₹20 |
| Delivery Fee | ₹30 |
| GST on Food (5%) | ₹10 |
| Total Payable | ₹260 |
If GST is not applied to the ₹20 packaging charge, the tax shortfall is ₹1 per order. Multiply this across thousands of orders and the cumulative revenue loss to the government becomes substantial.
Industry Implications and Concerns
The ongoing scrutiny may result in:
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Notices or penalties for restaurants found non-compliant.
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Revision of contracts between restaurants and food apps regarding tax responsibilities.
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Price hikes for consumers, as businesses pass on the GST burden.
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The need for clear, centralized guidelines from the GST Council.
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CaptainBiz anticipates that once the audits are complete, the government may issue an official circular or notification to resolve the ambiguity.
What Restaurants Should Do Now – CaptainBiz’s Recommendations
| Action Step | Purpose |
|---|---|
| Review past packaging charge invoices | Detect potential gaps in GST compliance |
| Consult a tax advisor or GST expert | Avoid legal troubles and penalties |
| Use GST-compliant invoicing software like CaptainBiz | Automate calculations and ensure accuracy |
| Clarify contracts with food apps | Prevent double taxation or oversight |
CaptainBiz enables restaurants and small businesses to issue GST-compliant invoices, track tax liabilities, and prepare for audits effortlessly—all in a few clicks.
Read More: CaptainBiz Online GST Calculator
Conclusion
The GST probe into packaging charges collected by restaurants reflects the evolving regulatory challenges in India’s fast-growing food delivery economy. While food platforms have become essential to consumers and restaurants alike, clarity on tax responsibilities is crucial for long-term sustainability.
With potential new taxes on the horizon, restaurants must proactively audit their invoicing practices, understand GST rules on incidental charges, and adopt transparent billing systems like those offered by CaptainBiz.
For continued updates on GST laws, compliance tools, and small business invoicing, follow CaptainBiz—your partner in smooth and smart tax management.
Frequently Asked Questions (FAQs)
1. What sparked the GST investigation into restaurants?
The GST department issued summons to multiple restaurants after suspecting irregularities in how they applied GST on packaging charges for food deliveries. These investigations focus on whether taxes were properly deposited since January 2022.
2. Do packaging charges attract GST?
Yes. Even if packaging is billed separately, it is considered part of the overall food supply and subject to GST, typically at 5%—the same rate applied to the food itself.
3. Who is supposed to pay GST on packaging – the restaurant or the delivery app?
This is where confusion arises. While Swiggy and Zomato now collect GST on food sales, restaurants are still responsible for GST on packaging because they provide this service—not the apps.
4. Can packaging charges be treated as a separate supply?
Some legal experts argue that packaging may qualify as a separate supply. However, the general consensus under GST is that it forms part of the composite supply and should be taxed accordingly.
5. What are the consequences for non-compliance?
Restaurants that fail to declare packaging charges correctly may face penalties, interest on unpaid tax, and further legal action. The tax authorities can also demand detailed transaction records.
6. Has the government confirmed any new GST on food apps?
As of now, there’s no official announcement, but there are discussions underway about applying a 5% GST on services like delivery charges and commissions charged by food apps.
7. How can restaurants ensure they are GST compliant?
Using GST-compliant billing and accounting tools like CaptainBiz can help automate compliance. It ensures that packaging, food, and delivery charges are taxed correctly and records are audit-ready.
