Income Tax Department Investigates Swiggy, Zomato Discounts: Are They Breaking Rules?

From 1st January, 2022, both Zomato and Swiggy will be treated as restaurants.

From January onwards, food delivery apps Zomato and Swiggy will face scrutiny from the Income Tax department on the discounts it offers.

Motives Of Investigation

The department is targeting the companies’ offers of discounts on payments made by a particular credit card, debit card or any digital wallets.

They also offer extra discounts if a customer orders beyond a particular amount or from a certain restaurant.

Also to be probed is the arrangement between banks and the apps which may be considered “barter” for the promotion of banking services or credit cards, which is also liable to be taxed.

The Dilemma

From 1st January, 2022, both Zomato and Swiggy will be treated as restaurants which would require them to pay a tax of around 5% on the total cost of food.

The reason behind the government’s intervention is that it seeks to understand whether the tax should be applied on-the original price or the discounted one.

Even if the amount without the discount ends up being taxed, there are challenges since factors like tipping delivery boys, surge fees, delivery fees and packaging charges have to be considered.

Input Tax Credit

In order to avail the input tax credit, the companies seek to charge 18% GST instead of 5% GST on this cost.

Input tax credit is something these companies would chase since they have huge costs in terms of technology and rent.

It is basically GST paid on input services or raw materials that can be set off against a certain kind of future tax liability.

The Case Of Dhabas

Small restaurants or dhabas typically do not pay GST, so in this case the tax burden falls on the delivery apps. 

So the question which arises is the amount on which GST must be paid since discounts are not offered in such situations.

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