IT Department Detects Rs 25,000 Crore Potential Tax Evasion by Restaurants Across India:

The Income Tax Department has found large-scale tax evasion by restaurants across the country, the total amount of which may exceed Rs 25,000 crore. Tax evasion is estimated at Rs 7,500 crore on the basis of data from food delivery platforms, Swiggy and Zomato. The analysis revealed that almost 8,000 restaurants had TDS deducted on their earnings but didn’t file income tax returns. The data covers four financial years, 2021-22 to 2024-25, although the data for the most recent financial year is not yet available.

In 2024-25 alone, these restaurants earned nearly Rs 2,700 crore through food delivery platforms. Around Rs 25 crore in tax was deducted from these earnings. Under the current system, food delivery platforms deduct 0.1% of the bill amount as TDS before paying restaurants. This rate was 1% in the initial years. Since 2021-22, the government has collected around Rs 75 crore as TDS from these restaurants in the last four years. The data also revealed a 65% rise in the number of restaurants identified during this period.

But the actual income of these restaurants could be even more as TDS is applicable only on orders placed through food delivery platforms and not on customers who eat at the restaurant. Dine-in business typically generates three to four times the revenue earned through food delivery. This means the total income of these restaurants could be significantly higher than the amount reflected in the data from Swiggy and Zomato.

The Income Tax Department is now planning a fresh drive to recover unpaid taxes from restaurants and eateries. In recent years, the department has used targeted campaigns, known as “nudge campaigns”, to encourage taxpayers to report their full income and pay the taxes due. Under this approach, authorities use available financial data to identify possible cases of under-reporting and contact taxpayers before taking further action against those who fail to comply.

Restaurants have faced allegations of under-reporting income in the past as well. A survey of nearly 1.8 lakh restaurants last year found that they were under-reporting their income by an average of 30-35%. Tax authorities surveyed around 70 restaurants and sent notices to more than 60,000 establishments, asking them to explain discrepancies and pay any outstanding taxes.

The department has also estimated that restaurants may have under-reported income worth around Rs 70,000 crore by making bills disappear from cloud-based billing systems. In certain cases, it is alleged that payments were funneled through the bank accounts of waiters and other employees to mask the true earnings of the businesses.

These measures have achieved some improvement in tax compliance, but not on a large enough scale. Now authorities are using more granular financial data to identify restaurants that could be concealing income. Of the many establishments under examination, many are expected to have an annual income of Rs 2 crore to Rs 5 crore. A larger number is expected in metro cities and major cities.