Tax tips for cloud kitchen start-ups
28 Feb 2025

Cloud kitchens, ghost kitchens, or virtual kitchens, whatever you call them, they are a thriving business model in India.

These setups function without a traditional dining area, catering exclusively to the online food ordering crowd.

Comprehending the taxation aspect is vital for these businesses to maintain compliance and streamline their financial workings.

Navigating GST registration
GST basics

Cloud kitchens earning more than ₹20 lakh a year are required to register for Goods and Services Tax (GST). This threshold is ₹10 lakh for northeastern states.

And, once registered, they need to charge GST on food items, which varies between 5% and 18%, depending on the type of food item sold.

It is crucial to accurately classify items to ensure the correct tax rate is applied.

Income Tax Act considerations
Direct taxes

Yes, under the Income Tax Act of 1961, cloud kitchen profits are taxable as business income.

The rate depends on the type of business entity: Sole proprietorships and partnerships are taxed at individual income rates, while private limited companies are taxed at corporate rates.

Cloud kitchens can also avail deductions under sections like 80C and 80D for investments and insurance premiums paid.

TDS implications on payments
TDS compliance

Cloud kitchens are required to deduct TDS on certain payments made to vendors or service providers.

For example, if a kitchen pays over ₹30,000 annually to a rent provider or exceeds ₹100,000 in professional fees payments, they must deduct TDS under Sections 194I and 194J of the Income Tax Act, respectively.

Failure to deposit TDS on time and accurately file TDS returns can lead to compliance issues.

Availing Input Tax Credit
ITC benefits

Cloud kitchens with GST registration can claim Input Tax Credit for GST paid on goods and services used in operating their business.

This includes GST paid on raw materials, packaging materials, and services such as delivery platforms.

However, ensure that all invoices are well-documented and reconcile with GST filings to claim ITC effectively.

Keeping up with annual filings
Compliance calendar

Annual compliance means individuals need to file their income tax returns by July 31 every year, and companies by September 30.

And, then there are monthly or quarterly GST returns that you can't ignore, based on your turnover and the scheme your business has chosen.

Penalties can be avoided and operations can remain unhindered with a compliance calendar. Do it today!