Have you ever wondered where that delicious pizza you ordered last night came from? Chances are, it was cooked up in a cloud kitchen. These virtual restaurants have been popping up everywhere, offering a convenient and cost-effective way for entrepreneurs to launch their food businesses.
But here's the twist: Cloud kitchens must follow the rules of traditional restaurants. That means complying with tax regulations, including the Goods and Services Tax (GST).
Whether you're a budding foodpreneur or already running a cloud kitchen, understanding GST is essential. So, let's get in and explore GST for cloud kitchen!
GST registration is obtaining a unique identification number (GSTIN) for a business liable to pay Goods and Services Tax (GST).
In India, firms with an annual turnover exceeding a certain threshold (usually Rs. 40 lakhs or Rs. 20 lakhs for some particle category states) must register for GST.
The process can be completed online through the GST portal. You'll need to provide documents such as a PAN card, Aadhaar card, bank account details, and proof of business premises.
GST, or Goods and Services Tax, is crucial in running a cloud kitchen's financial and operational aspects.
While cloud kitchens offer a low-overhead, delivery-focused business model, they are still subject to the same tax regulations as traditional restaurants.
Here’s why GST matters for cloud kitchens:
If your cloud kitchen's annual turnover exceeds ₹20 lakhs (₹ ten lakhs in particular states), you must register for GST. Not doing so can result to fines, legal issues, and business disruptions. Staying GST-compliant helps your kitchen operate smoothly and within the law.
Having a GST registration adds trust and credibility to your cloud kitchen.
Customers, delivery platforms like Swiggy and Zomato, and suppliers prefer working with GST-compliant businesses.
Displaying GST on invoices shows transparency, boosting your brand’s reputation.
Also Read: How to Partner and Register Restaurant with Swiggy in Easy Steps
GST registration helps you manage taxes across your business more effectively.
Without GST registration, cloud kitchens that cross the turnover limit may face penalties, interest charges, or backdated taxes.
Timely GST filing helps you avoid these issues and ensures smooth operations.
As your cloud kitchen grows, staying GST-compliant is crucial for expanding into new regions or adding new services.
Most food delivery platforms require GST registration, which helps you scale your business quickly while staying compliant.
Understanding GST helps you price your menu items correctly, considering the tax and other operational costs like raw materials and delivery.
Managing GST effectively ensures that your pricing supports healthy profit margins in a competitive market.
Join Kouzina's expanding cloud kitchen network to take advantage of data-driven marketing techniques that will elevate your company's profile in the meal delivery sector.
Cloud kitchens must comply with India’s Goods and Services Tax (GST) regulations like any other business.
Understanding the eligibility for GST registration is crucial for cloud kitchen owners to ensure proper tax compliance.
Here’s when and why cloud kitchens need to register for GST:
The primary eligibility criterion for GST registration is the annual turnover of your cloud kitchen business. The specific limits are:
If your cloud kitchen operates across multiple states or plans to scale operations, registering under GST becomes mandatory once these turnover limits are crossed.
Even if your cloud kitchen’s turnover exceeds the mandatory threshold, you may opt for voluntary GST registration. This can offer advantages like:
Cloud kitchen firms like Kouzina do not have dine-in facilities. Their entire concentration is on cooking meals for delivery services like Swiggy.
GST registration is mandatory regardless of your annual turnover if your cloud kitchen delivers or supplies food to customers in other states.
This rule applies even to businesses whose turnover is below INR 20 lakhs, as interstate supply automatically requires compliance under GST law.
Cloud kitchens that sell food through e-commerce platforms such as Swiggy, Zomato, or Uber Eats must register for GST, even if their annual turnover is below the prescribed limit. GST law mandates registration for businesses operating through e-commerce platforms.
GST registration is mandatory if your cloud kitchen is involved in transactions where the Reverse Charge Mechanism (RCM) applies (e.g., purchasing goods from unregistered suppliers).
Under RCM, the liability to pay tax shifts from the supplier to the recipient, making registration essential for proper tax compliance.
Even if your turnover is below the threshold, GST registration is compulsory in exceptional cases such as:
Cloud kitchens fall under the category of restaurants in terms of GST applicability. Here's a breakdown of the applicable GST rates:
Cloud kitchens are subject to an 18% GST rate, applicable to dine-in restaurants and food delivery services. The GST is levied on the total value of the food supplied, including any packaging and delivery charges.
One crucial point is that restaurants and cloud kitchens operating under a regular GST registration cannot claim input tax credit (ITC) on goods or services used to run the business. You cannot deduct the GST on raw materials, kitchen equipment, or other inputs.
You can complete the GST for the cloud kitchen registration process online through the official GST portal. Follow these steps:
Visit the official GST portal (www.gst.gov.in) and click the "Services" tab.
Enter your basic details, including your PAN, mobile number, and email ID. Once submitted, you'll receive an OTP for verification.
After verification, fill in your business details, including the name of your cloud kitchen, address, bank account details, and business structure (proprietorship, partnership, etc.).
Upload the necessary documents such as:
After submitting the form, the GST officials will verify your application. Once approved, you'll receive your GST registration certificate, which includes your unique GST Identification Number (GSTIN).
The GST for the cloud kitchen registration process in India is relatively simple. Cloud kitchens can register for GST online through the GST portal. The below documents are required for GST registration:
After registering for GST, cloud kitchens must file monthly, quarterly, or annual returns, depending on the nature of the business and turnover.
The due dates for filing GST returns depend on the return type:
Failure to file timely returns can result in penalties and interest, so staying on top of your GST filings is essential.
Like any other business, cloud kitchens must pay income tax based on earnings. Here’s what you need to know:
Taxable income is the total money you make from selling food minus running your cloud kitchen expenses, like rent, utilities, ingredients, and staff salaries.
Based on your total income, you will pay income tax according to the tax rules for individuals or companies:
You can deduct business expenses to lessen your taxable income. Common expenses include:
Deducting these expenses helps lower your tax bill.
It’s essential to keep accurate records of all your business transactions. This includes:
Good record-keeping helps you manage your taxes better and claim the correct deductions.
Cloud kitchens also need to follow TDS and TCS rules. These are taxes that need to be collected or deducted before making payments.
If you hire contractors (like delivery partners or maintenance services), you must deduct tax (TDS) from their payments if the total yearly fee exceeds ₹30,000. The TDS rate is usually 1% for individuals and 2% for companies.
If you employ people whose salaries exceed ₹2.5 lakh annually, you must deduct tax (TDS) from their wages each month. The amount of tax deducted depends on their income tax slab.
Food delivery platforms like Swiggy and Zomato collect 1% TCS (Tax Collected at Source) on the sales made through their platforms. This amount is deposited with the government and credited to your GST account.
Also Read: Top Online Food Delivery Platform - Apps In 2024
To comply with TDS and TCS rules:
Cloud kitchen owners may face particular challenges.
For smaller cloud kitchens, managing GST compliance can be overwhelming. Filing regular returns, maintaining records, and managing invoices require dedicated resources or third-party assistance, which could add to operational costs.
Under the 5% GST slab, cloud kitchens cannot claim input tax credits, which could result in higher costs for raw materials and other operational needs. Businesses must evaluate whether opting for the 18% rate and claiming ITC makes better financial sense.
Failure to comply with GST regulations can lead to penalties, fines, or cancellation of your GST registration. To avoid legal issues, keeping track of return filing dates, paying taxes on time, and maintaining proper records is essential.
Cloud kitchens in India are required to register for GST if their annual turnover exceeds Rupees. 20 lakhs. The applicable GST rates for cloud kitchens depend on the nature of the goods or services provided.
While the 18% GST rate for cloud kitchens may seem high, it’s necessary for running a legitimate business in the food industry.
Cloud kitchens must file GST returns monthly and maintain proper income, expenses, and liability records.
Entrepreneurs who want to join a well-established cloud kitchen business can invest between Rs. 10-15 lakh in Kouzina, which has been successful as a multi-brand model.
