Swiggy, India’s leading online food and grocery delivery platform, hit a tax demand of ₹7.59 crore from the Office of the Profession Tax Officer in Pune. Authorities allege that Swiggy failed to deduct the required profession tax from employees’ salaries during the financial year 2021-22. The demand is based on the Maharashtra State Tax on Professions, Trades, Callings & Employments Act, 1975. Swiggy has responded by stating that it has strong legal grounds to challenge the assessment and will file an appeal. The company maintains that this tax demand will not significantly impact its financial position or day-to-day operations.
This latest tax dispute follows another substantial demand from the Income Tax Department in Bengaluru, which issued an order asking Swiggy to pay ₹158 crore for tax-related discrepancies during the same financial period. This earlier order cited issues such as disallowing cancellation charges paid to merchants under Section 37 of the Income Tax Act, 1961, and unreported interest income from tax refunds. Swiggy insists that it has robust legal arguments against these assessments and will take all necessary legal steps to contest the claims.
With its continuous legal battles regarding taxation, Swiggy remains committed to operating within the law while defending its financial interests. The company, backed by major investors, continues to expand its services in food and grocery delivery while navigating regulatory challenges. This case highlights the increasing scrutiny faced by startups in India as they scale operations.
1. Swiggy: Business Model, Revenue, and Growth
1.1 Swiggy’s Founding and Expansion
Founded in 2014 by Sriharsha Majety, Nandan Reddy, and Rahul Jaimini, Swiggy has grown into one of India’s largest food and grocery delivery platforms. The Bengaluru-based company revolutionized online food ordering by ensuring fast deliveries and extensive restaurant partnerships. Backed by investors like Prosus, Accel, and SoftBank, Swiggy has expanded into grocery delivery (Instamart) and pick-and-drop services (Genie).
1.2 Revenue Model and Financial Performance
Swiggy generates revenue through commissions from restaurants, delivery fees from customers, and subscription-based models like Swiggy One. The company also earns from advertisements and partnerships. Despite facing stiff competition from Zomato, Swiggy has consistently expanded, although profitability remains a challenge due to high operational costs.
2. Swiggy’s Tax Dispute in Pune
2.1 Details of the Tax Demand
The Pune Profession Tax Department has served Swiggy hit a tax demand notice of ₹7.59 crore, alleging that the company violated provisions related to the deduction of profession tax from employees’ salaries under Maharashtra’s tax laws. The issue pertains to the financial year 2021-22.
2.2 Swiggy’s Response and Legal Stand
Swiggy has announced plans to appeal the order, arguing that it has strong grounds to challenge the assessment. The company maintains that the tax demand will not impact its operations or financial stability.
3. Additional Tax Demand from Bengaluru
3.1 ₹158 Crore Income Tax Demand
Just days before the Pune tax notice, Swiggy received another tax demand of over ₹158 crore from the Deputy Commissioner of Income Tax in Bengaluru. This demand was based on two primary objections:
- Disallowance of Cancellation Charges: Swiggy paid cancellation fees to merchants, which the tax authorities have disallowed under Section 37 of the Income Tax Act, 1961.
- Unreported Interest Income: The department claims that Swiggy failed to disclose interest earned on income tax refunds.
3.2 Swiggy’s Legal Approach
Swiggy has stated that it will contest this order, just as it is challenging the Pune tax demand. The company believes these demands will not significantly impact its financial health.
4. Regulatory Challenges for Indian Startups
4.1 Increased Scrutiny on Tax Compliance
Startups in India face increasing scrutiny over tax compliance. Government authorities have intensified enforcement efforts, leading to higher tax demands for companies scaling rapidly.
4.2 Previous Tax Disputes Involving Swiggy
Swiggy has encountered tax-related issues before:
- 2023: The GST Department issued a tax demand of ₹326.7 crore for July 2020-March 2022.
- 2017-18: The IT Department’s TDS Circle in Bengaluru demanded ₹99 lakh.
5. Learning for Startups and Entrepreneurs
5.1 Importance of Tax Compliance
Startups must ensure thorough tax compliance to avoid legal and financial setbacks. Engaging expert tax consultants and maintaining transparent financial records can prevent unexpected liabilities.
5.2 Legal Preparedness
Having a strong legal team to challenge unfair tax claims is crucial. Startups should be prepared to defend themselves against sudden regulatory actions.
5.3 Financial Impact of Tax Disputes
Even if tax demands do not immediately impact daily operations, they can affect investor confidence. Maintaining a clean tax record is essential for sustaining long-term growth.
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