A cloud kitchen, also known as a "dark kitchen," "virtual kitchen," or "ghost kitchen," is a commercial kitchen setup that exclusively prepares food for delivery. Unlike traditional restaurants, cloud kitchens do not have a dine-in facility and focus on online food delivery platforms such as Zomato, Swiggy, and Uber Eats. The model reduces overhead costs by eliminating expenses associated with a physical restaurant, such as dining areas and front-of-house staff.

Cloud kitchens can either operate under a single brand or offer multiple brands from one location, making it easier to scale and test new food concepts without significant additional costs. You can book our GST Advisory Services if you need a consultation from a Chartered Accountant at GenZCFO.

Overview of GST in India

The Goods and Services Tax (GST) is a destination-based, multi-stage indirect tax that replaced various central and state taxes such as VAT, service tax, and excise duty in July 2017. The GST system is designed to create a unified tax structure across the country, improving ease of doing business by eliminating the cascading effect of taxes.

GST Structure:

• CGST (Central GST): Levied by the central government.
• SGST (State GST): Levied by the state governments.
• IGST (Integrated GST): Applied to inter-state transactions and imports.

Businesses are required to collect and remit GST based on the type of goods or services provided. Different tax slabs (0%, 5%, 12%, 18%, and 28%) apply based on the nature of the goods or services.

Applicability of GST to Cloud Kitchens

Cloud kitchens fall under the purview of restaurant services for GST purposes. According to Notification No. 46/2017 – Central Tax (Rate), cloud kitchens, being entities engaged in the supply of food and beverages, are categorized as restaurants for GST purposes. Therefore, they must comply with GST regulations as outlined in Section 22 of the CGST Act, 2017, which stipulates that businesses engaged in the supply of goods or services with a turnover exceeding the prescribed limit must register for GST.

Turnover Threshold for GST Registration

Under Section 22(1) of the CGST Act, 2017, the GST registration threshold is as follows:

• For normal states: Businesses with an annual turnover of ₹20 lakhs or more are required to register for GST.
• For special category states (like Himachal Pradesh, Uttarakhand, and the northeastern states): The threshold is ₹10 lakhs.

If your cloud kitchen generates revenue above these limits, you must register for GST. Even if your business operates below this threshold, there are other situations where GST registration may become mandatory, such as selling through e-commerce operators.

Section 24 – Mandatory Registration for E-commerce Operators:

Any cloud kitchen that sells food through e-commerce platforms such as Swiggy or Zomato is required to register for GST regardless of turnover. According to Section 24(ix) of the CGST Act, e-commerce sellers must register for GST without any turnover limit.

Voluntary GST Registration and Its Benefits

If a cloud kitchen's turnover is below ₹20 lakhs (or ₹10 lakhs in special category states), owners can still opt for voluntary GST registration. While this isn't mandatory, voluntary registration provides several benefits:

Benefits of Voluntary Registration:

• Input Tax Credit (ITC): Registered businesses can claim input tax credit on goods and services used in the operation of the business, such as raw materials, packaging, and equipment. This helps reduce overall tax liability.
• Competitive Advantage: Being a registered GST business can boost your credibility and appeal to larger platforms and customers.
• Simplified Expansion: If your business plans to expand to multiple states, having GST registration simplifies interstate transactions.

Penalties for Non-Registration Under GST

If a cloud kitchen surpasses the prescribed turnover limit or is required to register due to selling through e-commerce platforms but fails to comply, the business may be penalized. Under Section 122 of the CGST Act, 2017, the penalties for not registering are:

• 10% of the tax due, subject to a minimum of ₹10,000.
• 100% of the tax due in cases where evasion is established as deliberate fraud.

Moreover, businesses may also face legal action, such as the seizure of goods, property, or bank accounts.

Types of GST Levied on Cloud Kitchens

For cloud kitchens, the key GST rate applicable is 5%, without input tax credit (ITC), as stipulated under Notification No. 11/2017-Central Tax (Rate). This tax rate applies to restaurant services, which include the supply of food for consumption whether dine-in or delivery.

GST on delivery charges: In some cases, delivery charges levied by the cloud kitchen may also attract GST.

Real-Life Examples of Cloud Kitchens in India

Rebel Foods (Faasos, Behrouz Biryani):

Rebel Foods is a leading cloud kitchen operator in India that runs multiple brands, including Faasos, Behrouz Biryani, and Oven Story. As a large-scale operation, Rebel Foods is registered under GST, enabling the company to manage its interstate sales efficiently and comply with tax requirements across states.

Box8:

Box8 specializes in Indian meals and operates a network of cloud kitchens across cities. Being registered under GST, Box8 ensures smooth compliance with tax obligations, allowing them to operate across multiple states and benefit from input tax credit.

FreshMenu:

FreshMenu is another popular cloud kitchen brand that delivers gourmet meals via its app and delivery partners like Swiggy. FreshMenu is GST-compliant, allowing them to stay competitive in the market by claiming ITC and expanding operations smoothly.

GST Compliance for Cloud Kitchens Using E-commerce Platforms

For cloud kitchens that rely on e-commerce platforms like Swiggy, Zomato, or Uber Eats, GST registration is compulsory. As per Section 52 of the CGST Act, these platforms must collect Tax Collected at Source (TCS) at 1% from sellers and remit it to the government. The TCS collected is reflected in the seller's GST return.

Cloud kitchens must be aware of these e-commerce compliance requirements and ensure that TCS deductions are properly accounted for while filing returns.

GST Input Tax Credit for Cloud Kitchens

One of the key benefits of GST registration is the input tax credit (ITC). Cloud kitchens can claim ITC on various business-related expenses, provided they opt for the regular GST scheme rather than the composition scheme. Some common expenses where ITC can be claimed include:

• Purchase of raw materials (vegetables, spices, etc.)
• Kitchen equipment and appliances
• Utilities like gas, electricity, and water
• Packaging materials

To claim ITC, proper invoices and documentation must be maintained, and the tax paid on inputs should be reported in monthly returns.

How to Register Your Cloud Kitchen Under GST

Registering your cloud kitchen under GST is a straightforward process:

1. Visit the GST Portal: Go to the official GST portal at https://www.gst.gov.in.
2. Complete the Application: Fill out the GST registration form (Form GST REG-01).
3. Upload Required Documents: Submit documents such as PAN card, proof of business registration, address proof, and bank details.
4. Aadhaar Authentication: Verify the application using Aadhaar-based authentication for a quicker approval process.
5. Receive GSTIN: Once the application is verified, you will be assigned a unique GSTIN (GST Identification Number).

Documents Required for GST Registration

To register a cloud kitchen for GST, the following documents are required:

• PAN Card: Permanent Account Number of the business.
• Proof of Business Registration: Incorporation certificate or partnership deed.
• Identity and Address Proof: Aadhaar, passport, or voter ID of the business owner(s).
• Bank Account Details: Canceled cheque or bank statement.
• Digital Signature: Class 2 or Class 3 digital signature for authentication.

GST Return Filing and Compliance for Cloud Kitchens

After registering for GST, cloud kitchens must comply with regular filing requirements, which include:

• GSTR-1: Monthly or quarterly returns for outward supplies (sales).
• GSTR-3B: A summary return for the payment of tax.
• GSTR-9: An annual return summarizing all transactions.

Cloud kitchens must ensure that they maintain detailed records of invoices, purchases, and expenses to avoid non-compliance issues.

Provisions for GST Composition Scheme

The GST Composition Scheme is an option for small businesses with a turnover of up to ₹1.5 crores. Cloud kitchens opting for this scheme can pay a fixed GST rate of 1% on turnover, but they are not eligible to claim input tax credit.

However, this scheme is not available to businesses involved in e-commerce, meaning cloud kitchens selling through Swiggy or Zomato cannot opt for it.

FAQs

Is GST registration mandatory for cloud kitchens?

Yes, if the turnover exceeds ₹20 lakhs or the cloud kitchen operates via e-commerce platforms.

What is the GST rate for cloud kitchens?

The applicable GST rate is 5% without input tax credit for restaurant services.

Can cloud kitchens claim input tax credit?

Yes, if registered under the regular GST scheme, cloud kitchens can claim ITC on purchases like raw materials and equipment.

What happens if a cloud kitchen doesn't register for GST?

Non-registration can result in penalties of up to 100% of the tax due in cases of deliberate fraud.

Is GST applicable on food delivery charges?

Yes, delivery charges may attract GST depending on how they are billed.

What documents are needed for GST registration?

Documents such as PAN, proof of business registration, identity proof, bank details, and a digital signature are required.