I-T department estimates 25k cr tax evasion by restaurants

The Indian Income Tax Department has uncovered significant tax evasion by restaurants, potentially reaching Rs 25,000 crore. Based on data from food delivery platforms Swiggy and Zomato, the evasion is estimated at Rs 7,500 crore. This assessment is derived from analyzing restaurant data spanning four years, from 2021-22 to 2024-25. The data for the most recent financial year is yet to be released.

In the fiscal year 2024-25 alone, these restaurants generated approximately Rs 2,700 crore in revenue, with a tax of Rs 25 crore deducted. When customers place orders through food delivery apps, 0.1% of the bill amount is deducted as tax (TDS), which was previously 1%. Since TDS does not apply to dine-in customers who typically generate three to four times the revenue of restaurants that use food delivery apps, the overall restaurant revenue is a multiple of what is shown through TDS via food delivery apps.

Over the four years commencing from 2021-22, the government has collected around Rs 75 crore in TDS. The number of such restaurants has increased by 65% during this period. Authorities are planning to launch a new drive to encourage restaurants and eateries to pay the taxes they owe to the government. In recent years, the income tax department has utilized its nudge campaign, utilizing data to target those under-reporting or concealing income, prompting them to pay up and subsequently addressing defaulters.

Restaurants have previously been found to be under-reporting income, often being vocal opponents of the Goods and Services Tax (GST) when it was implemented. Last year, an analysis of nearly 1.8 lakh restaurants revealed an average under-reporting of income by 30-35%. Tax authorities surveyed around 70 and wrote to over 60,000 of them, urging them to pay up.

As reported by The Times of India on March 9, the tax department estimated income under-reporting of Rs 70,000 crore due to bills disappearing from cloud-based systems. Additionally, payments were routed through waiters and workers' accounts to suppress the restaurants' income, leading to some improvement in compliance, albeit not significantly.

Now, the exercise is more comprehensive, with authorities identifying restaurants with incomes of Rs 2-5 crore in major cities, the numbers being larger in metros and bigger cities.