Zomato Hit With Rs. 800 Crore Tax Demand by GST Authorities

Zomato faces a Rs. 803.4 crore tax demand from GST authorities. The demand covers 29 October 2019 to 31 March 2022. It includes Rs. 401 crore in tax and equal interest and penalties. This Zomato Tax demand raises questions about compliance and could significantly impact the company’s finances. However, Zomato asserts a strong legal position and intends to contest the order, citing support from external legal and tax advisors.

The Details of Zomato Tax Demand

Zomato received the GST order on 12 December 2024, dated 12 November 2024. This Zomato Tax demand, totalling Rs. 802 crore, is linked to alleged non-compliance during the three years. Zomato has clarified that it strongly contests the claim.

In a note to exchanges, Zomato stated:

“We believe that we have a strong case on merits which is backed by opinions from our extemal legal and tax advisors. The Company will be filing an appeal against the order before the appropriate authority.”

The company plans to file an appeal against the order with the appropriate authorities.

The Ongoing GST Dispute

This is not the first instance of a Zomato Tax demand. In 2023, they came across the problem of ₹400 crore tax demand. This was in relation to demand for the payment of GST on delivery fees which was as of 2017.

Zomato and other delivery platforms, like Swiggy, differ from tax authorities on GST applicability. The authorities argue that food delivery is a service, attracting 18% GST. Conversely, Zomato believes it acts as a platform, hiring gig workers for deliveries. They contend that delivery fees are paid to gig workers, who are exempt from GST if their annual income is below Rs. 20 lakh.

This discrepancy has created confusion over whether GST liability falls on platforms like Zomato or individual delivery personnel.

Potential Financial Impact on Zomato

The latest demand of Rs. 802 crore could put a lot of pressure on Zomato’s financial health. It is above 60 percent of the company’s net profit for FY24. If the demand is upheld, Zomato could experience a decline in profitability, which shapes a threat to its future stock movement.

As a result, investors are likely to be cautious until there is certainty over the appeal process. They generate a sense of uncertainty and may in the short-term exert pressure on Zomato’s stock value.

The Broader Implications for the Industry

Zomato’s tax woes highlight an industry-wide issue for food delivery platforms. Platforms like Zomato and Swiggy are redefining traditional service models, yet tax laws struggle to keep up with these changes.

Experts believe the real question is about the nature of the service. Is the service provided by the platform or delivery personnel? Addressing this will require clearer guidelines from tax authorities and policymakers.

Conclusion

The Rs. 802 crore Zomato Tax demand brings Zomato’s tax practices under scrutiny, impacting its financial stability and investor confidence. While Zomato plans to contest the demand, the resolution will likely shape the future of gig economy regulations in India.

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FAQs About Zomato

General Information

1. What is Zomato?

• Zomato is a company that helps you find and order food from restaurants near you.

1. When did Zomato start?

• Zomato was started in 2008 by Deepinder Goyal and Pankaj Chaddah.

1. What services does Zomato offer?

• Zomato offers food delivery, restaurant reviews, and table booking services.

Recent Tax Issue

4. Why is Zomato in the news lately?

• Zomato is in the news because it received a big tax demand of Rs. 803 crore from the GST authorities.

4. What is the tax demand about?

• The tax demand is for not paying GST on delivery charges from October 2019 to March 2022.

4. How much is the tax demand?

• The tax demand is Rs. 803.4 crore, including GST, interest, and penalty.

4. What does Zomato say about the tax demand?

• Zomato believes it has a strong case and will appeal against the order.

4. Who will Zomato appeal to?

• Zomato will appeal to the appropriate authority, backed by their external legal and tax advisors.

4. When did Zomato receive the GST order?

• Zomato received the GST order on December 12, 2024, dated November 12, 2024.

4. How will the tax demand affect Zomato?
   • If the demand is upheld, it could significantly impact Zomato’s financial health and profitability.
5. What about Zomato’s stock prices?
   • The tax demand has caused Zomato’s shares to fall, making investors cautious.

Industry Implications

12. Is this a problem only for Zomato?
    • No, other food delivery platforms like Swiggy also face similar issues with GST on delivery charges.
13. Why is there confusion about GST on delivery charges?
    • There is confusion because Zomato and Swiggy argue they are just platforms, while tax authorities say they provide a service attracting 18% GST.

Previous Tax Issues

14. Has Zomato faced tax issues before?
    • Yes, in 2023, Zomato received a tax demand of Rs. 400 crore for similar reasons.
15. What was the previous tax demand about?
    • The previous demand was also for non-payment of GST on delivery fees, dating back to 2017.

Company Operations

16. In how many cities does Zomato operate?
    • Zomato operates in over 1,000 cities and towns across India.
17. What other services does Zomato offer besides food delivery?
    • Zomato offers table booking, restaurant reviews, and even grocery delivery in some areas.
18. Does Zomato provide any services for restaurants?
    • Yes, Zomato offers services like licensing, taxation, and hiring solutions for restaurants.

Technology and Features

19. How can I track my food order on Zomato?
    • You can track your food order using the live tracking feature on the Zomato app.
20. Does Zomato offer any discounts or offers?
    • Yes, Zomato provides various deals and discounts on food delivery and dining.
21. Is Zomato safe for contactless delivery and dining?
    • Yes, Zomato ensures maximum safety and hygiene with contactless food delivery and dining options.
22. What is Zomato’s new order scheduling feature?
    • Zomato launched an order scheduling feature that allows customers to schedule food deliveries from two hours to two days in advance.

Environmental and Sustainability Initiatives

23. What is Zomato’s ‘Plastic-Free Future’ campaign about?
    • Zomato’s ‘Plastic-Free Future’ campaign is an initiative to recognize and encourage restaurants to use plastic-free packaging for food deliveries.
24. How many restaurants have joined Zomato’s ‘Plastic-Free Future’ program?
    • Over 200 restaurant brands in about 30 cities have joined the ‘Plastic-Free Future’ program.
25. What is Zomato’s stance on environmental sustainability?
    • Zomato claims to offset more than 100% of the carbon its delivery fleet generates and aims for Net Zero by 2030.
26. Does Zomato have any initiatives to reduce plastic use?
    • Yes, Zomato has a ‘Plastic-Free Future’ campaign to encourage restaurants to use alternatives to plastic in food packaging.

Financial and Funding News

27. How much did Zomato raise in its recent fundraising?
    • Zomato raised more than Rs 85 billion via a qualified institutional placement in early December 2024.
28. What was the purpose of Zomato’s recent fundraising?
    • The fundraising was Zomato’s first major fundraising following its public listing in 2021.

Stock Performance and Market Impact

29. How have Zomato’s shares performed in the past year?
    • Zomato’s shares have rallied 138% in the past one year, although they have seen some selling recently due to various concerns.
30. Why did Zomato’s shares fall recently?
    • Zomato’s shares fell nearly 2.6% after the company received a Rs 803 crore GST demand notice and due to concerns over Amazon’s entry into the quick commerce space.

Company Performance and Financials

31. What was Zomato’s consolidated net profit in the second quarter of 2024?
    • Zomato reported a consolidated net profit of Rs 176 crore in the second quarter, a 389% growth from the same period last year.
32. How did Zomato’s revenue from operations perform in the second quarter of 2024?
    • Zomato’s revenue from operations rose 68% year-on-year to Rs 4,799 crore in the second quarter of 2024.

User Experience

33. How can I find the best restaurants on Zomato?
    • You can search and discover top restaurants, cuisines, and dishes using customer reviews and ratings on the Zomato app.
34. Can I book a table at a restaurant through Zomato?
    • Yes, you can book a table at partner restaurants using the Zomato app.
35. How do I get in touch with Zomato customer support?
    • You can contact Zomato’s customer support through the app or their website for any queries or issues.