Restaurants face income tax scrutiny as suspected tax evasion tops Rs 25,000 crore

The income tax department has detected suspected tax evasion of more than Rs 25,000 crore by restaurants across India and is preparing a fresh drive to improve compliance, the TOI reported on Monday.

An analysis of data from food delivery platforms Swiggy and Zomato, as cited in the report, identified that around 8,000 restaurants that had tax deducted at source (TDS) against their earnings had not filed income tax returns.

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The estimated evasion linked to these establishments stood at Rs 7,500 crore over four financial years, from 2021-22 to 2024-25.

The exercise highlights a wider compliance gap in the restaurant industry, where food delivery earnings represent only a portion of overall revenue.

TDS is deducted on transactions routed through delivery platforms, but does not apply to dine-in sales, which typically generate three to four times the revenue earned through food delivery, according to the report.

In 2024-25, restaurants earned nearly Rs 2,700 crore through food delivery platforms, on which around Rs 25 crore was deducted as tax.

The government collected nearly Rs 75 crore in TDS from these restaurants over the four years, while the number of restaurants identified rose 65%, the report said.

The tax department plans to use this data to identify restaurants that may have under-reported their income and ask them to file returns and pay their dues.

Many of these establishments earn between Rs 2 crore and Rs 5 crore a year, the report said.

The department has previously used targeted “nudge campaigns” to encourage taxpayers to correct under-reporting before taking action against defaulters.

The latest exercise follows an earlier assessment covering nearly 1.8 lakh restaurants, which found average income under-reporting of 30-35%, as per the report.

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Tax authorities surveyed around 70 establishments and wrote to more than 60,000 seeking compliance.

The department had also estimated Rs 70,000 crore in under-reported income linked to bills allegedly disappearing from cloud-based systems, according to an earlier report by the newspaper published on March 9.

The renewed scrutiny comes as tax authorities expand the use of data analytics to identify potential evasion and improve reporting across the restaurant sector.