Income Tax Department Detects ₹25,000 Crore Tax Evasion by Restaurants

The Income Tax Department has detected potential tax evasion exceeding ₹25,000 crore in the restaurant sector. Data from Swiggy and Zomato reportedly indicates that around 8,000 restaurants failed to file income tax returns, with estimated evasion of ₹7,500 crore. Authorities are planning data-driven enforcement measures to improve tax compliance.

The Income Tax Department has reportedly uncovered widespread tax under-reporting in the restaurant industry, with the potential amount of concealed income estimated to exceed ₹25,000 crore.

An analysis of data obtained from food delivery platforms Swiggy and Zomato indicates that around 8,000 restaurants may have failed to file their income tax returns despite tax deducted at source (TDS) being reported against them. The estimated tax-related discrepancy in these cases stands at approximately ₹7,500 crore. The assessment is based on data covering FY 2022–23 to FY 2024–25, while figures for the latest financial year are not yet available.

During FY 2024–25, the identified restaurants reportedly generated nearly ₹2,700 crore in revenue through food delivery platforms, against which TDS of approximately ₹25 crore was deducted. Under the applicable mechanism, food delivery platforms deduct TDS at 0.1% of the transaction value, compared with the higher rate of 1% that applied in the initial years. However, these deductions cover platform-based transactions and do not capture revenue earned through direct dining services. Since dine-in business can generate three to four times the revenue earned through delivery platforms for some restaurants, the actual turnover of the establishments could be substantially higher than the figures reflected in TDS records.

Over the four-year period beginning FY 2021–22, the government collected nearly ₹75 crore in TDS through this mechanism. The number of restaurants identified in the exercise reportedly increased by around 65% during the period, prompting tax authorities to strengthen their monitoring efforts.

The department is now considering a more targeted compliance drive to identify restaurants that may have understated their income or failed to meet their tax obligations. In previous years, the tax administration has used data-driven ‘nudge campaigns’ to flag potential discrepancies, encourage voluntary compliance and identify taxpayers who have not correctly disclosed their earnings.

Concerns regarding income suppression in the restaurant sector have also emerged in earlier investigations. An exercise conducted last year covering nearly 1.8 lakh restaurants reportedly found average income under-reporting of around 30–35%. Tax officials examined approximately 70 establishments in greater detail and issued communications to more than 900 restaurants seeking explanations or payment of outstanding dues.

Earlier findings also highlighted suspected revenue suppression through missing bills in cloud-based billing systems. According to a report published by The Times of India on March 9, the department estimated that such practices could have resulted in the under-reporting of approximately ₹20,000 crore. Investigators also identified cases in which payments were allegedly routed through the personal bank accounts of waiters and other employees, in addition to cash transactions, potentially concealing the actual revenue earned by restaurants.

Although these enforcement measures have reportedly contributed to some improvement in tax compliance, authorities believe that further action is necessary. The latest exercise uses more detailed data to identify individual restaurants, many of which reportedly fall within the annual income bracket of ₹2 crore to ₹5 crore. The potential scale of under-reporting is expected to be particularly significant in metropolitan areas and other major cities, where restaurant businesses generally operate at a larger scale. CASansaar