Summary 1. The company is alleged to have improperly claimed tax deductions for "cancellation charges paid to merchants," according to the Income Tax Department's assessment. 2. Swiggy has expressed confidence in its position, stating that it possesses strong arguments to contest the order and is actively pursuing necessary measures to protect its interests through the appropriate review or appeal processes. 3. This latest tax notice arrives just one week after Swiggy received another demand notice amounting to INR 99 lakh from Income Tax authorities in Bengaluru, covering the financial period between April 2017 and March 2018.
Food Delivery Giant Challenges Notice Over Disputed Merchant Cancellation Charges Deductions
Foodtech major Swiggy has received a tax demand notice from the Income Tax (I-T) Department requiring the company to pay an additional sum of INR 158.25 crore.
The notification alleges that the company incorrectly claimed deductions for “cancellation charges paid to merchants,” according to Swiggy’s recent exchange filing.
Details of the Tax Assessment
“Following alleged Contraventions: 1. Cancellation charges paid to merchants is disallowed under Section 37 of the Income-tax Act 1961… 2. Interest income on income tax refund has not been offered to tax,” the official filing elaborated.
The additional demand notice, issued by the Central Circle of the I-T department’s Bangalore office, covers the financial period between April 2021 and March 2022.
Swiggy’s Response to the Notice
In response to the tax demand, Swiggy stated that it is implementing necessary measures to safeguard its interests. “The company believes that it has strong arguments against the order and is taking necessary steps to protect its interest through review/appeal,” the filing further mentioned.
The food delivery platform expressed confidence that the demand notice would not significantly impact its “financials and operations.”
Pattern of Tax Disputes
This latest notice continues a series of tax-related challenges for the company. Just one week prior, Swiggy received another income tax demand notice amounting to INR 99 lakh from the office of Income Tax department, TDS Circle, Bengaluru, covering the period between April 2017 and March 2018.
Last year, the GST department also issued a substantial demand notice of INR 326.7 crore against the Sriharsha Majety-led enterprise for the period spanning July 2020 to March 2022. The company has formally contested this notice through an appeal.
Industry-Wide Regulatory Scrutiny
Swiggy’s primary competitor Zomato has similarly encountered multiple tax notices. In December of last year, the Deepinder Goyal-led organization received a significant GST demand notice totaling INR 401.70 crore, accompanied by an equivalent amount as penalty interest.
These repeated tax notices highlight the increasing regulatory scrutiny facing India’s rapidly growing food delivery sector as authorities work to ensure proper tax compliance across digital platforms.
Mounting Challenges Beyond Regulatory Hurdles
This latest tax complication emerges during a particularly challenging period for the food delivery giant, as Swiggy finds itself battling difficulties across several operational fronts simultaneously.
The company has been experiencing significant financial pressure amid an increasingly competitive landscape, particularly in the rapidly expanding quick commerce sector. This heightened competitive environment has necessitated substantial capital expenditure, severely impacting the organization’s financial health and profitability metrics. Financial reports reveal a concerning trajectory, with Swiggy’s quarterly losses expanding dramatically by 39% to reach INR 799 crore in the third quarter of fiscal year 2025, a substantial increase from the INR 574.4 crore deficit recorded during the same period in the previous financial year. Despite these mounting losses, the company managed to boost its operating revenue by 31%, achieving INR 3,993.1 crore during the reporting period compared to INR 3,048.6 crore in Q3 FY24.
The combination of escalating financial losses and intensifying market competition has triggered a significant deterioration in investor confidence, resulting in a pronounced decline in Swiggy’s stock performance. The company’s shares have experienced a dramatic downturn, shedding more than 38% of their value on a year-to-date basis, reflecting growing market concerns about the company’s financial trajectory and competitive positioning.
Further compounding these challenges, prominent financial institution BofA Securities recently downgraded its outlook for both Swiggy and its main competitor Zomato. The investment firm cited decelerating growth in the core food delivery business segment alongside substantial losses in the quick commerce division as primary factors driving this reassessment. Consequently, BofA Securities dramatically revised its rating for Swiggy from a favorable ‘Buy’ recommendation to a pessimistic ‘Underperform’ designation, while simultaneously reducing its price target for the company’s shares from INR 420 to INR 325.
Despite these mounting concerns, Swiggy’s stock performance showed marginal improvement during the most recent trading session, with shares concluding the day at INR 331.55 on the Bombay Stock Exchange (BSE), representing a modest 0.5% increase.
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