Swiggy Faces ₹158 Crore Tax Demand over Cancellation Fees, Refund Interest

Gurugram: Swiggy, the food delivery platform, is facing a significant fiscal challenge as the Income Tax Department has issued an additional tax demand of ₹158 crore against the company. This assessment order, pertaining to the financial period from April 2021 to March 2022, cites alleged violations tied to the cancellation fees paid to merchants and the tax-exempt status of interest generated from income tax refunds.

The demand notice was issued by the Income Tax Department's Bangalore office (the Central Circle) as per an exchange filing. Swiggy has made a public declaration of its plans to challenge the order, claiming it has "strong arguments against the Order" and that it is taking appropriate measures to protect its interests through review and appeal procedures. Further it believes that this demand notice will have an immaterial impact on their financial performance & operations.

This is not the first instance for the Bengaluru-based food-tech company. Sources said that Swiggy has faced tax scrutiny in the past. Recently, Bengaluru’s Income Tax Department’s TDS Circle issued a demand notice for ₹99 lakh for the period between April 2017 and March 2018. Besides, the Goods and Services Tax (GST) department demands a payment of ₹326.7 crore from corporation for July 2020 to March 2022, against which Swiggy had already filed an appeal in 2023.

The present tax demand of ₹158 crore relates to just two aspects of Swiggy's financial activities: cancellation fees paid to merchants, and interest received on refunds on income tax. The tax authorities apparently maintain that these facts had to be taxed within the assessment period. This difference of opinion is essentially a difference of interpretation on whether these specific revenue or expense streams fall within the scope of the tax provisions Aadhaar has invoked.

Even in the face of these fiscal headwinds, though, Swiggy’s operations are changing. We have Swiggy Instamart reaching across 100 cities in India, driven by growing demand for fast deliveries across tier II and III cities, as recent news suggested. “This is an expansion that gives millions of new consumers control of the breadth of products available to them, cementing the company’s vision of scaling into the quick commerce space,” the company said in a statement.

Swiggy’s Financial Landscape Compounded By ₹158 Crore Tax Demand The company is confident in its arguments for appeal and expects only a limited operational impact, but the outcome of the review and appeal processes will be watched carefully by each of the parties involved and interests presented to the European Commission tomorrow. The case spotlights the challenges faced by boomtown digital platforms in dealing with their tax liabilities — notably when it comes to new aspects of their business models, including cancellation fees and interest on refunds. With the order, enabling its services only upon re-evaluation, we can assume Swiggy will continue to pursue this destabilizing growth trajectory actively within the bounds of commerce and the law, thus leading to further data analyses up to October 2023.

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