Swiggy Receives INR 99 Lakh Tax Demand Notice from Authorities

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Swiggy, a leading foodtech startup in India, receives an income tax demand notice of INR 53.5 lakh. Along with an interest charge of INR 45.44 lakh, the total liability amounts to INR 98.9 lakh. The Deputy Commissioner of Income Tax, TDS Circle, Bengaluru, issued the notice, covering the period from April 2017 to March 2018. The company allegedly failed to deduct tax under Section 194C of the Income Tax Act, 1961, on cancellation charges paid to merchants. Swiggy has stated that it has strong legal grounds to challenge the notice and intends to appeal the decision.

This tax demand notice that swiggy receives, comes amid increasing scrutiny of food delivery firms, including Swiggy’s key rival Zomato. Over the past year, both companies have faced multiple tax-related investigations and GST notices. In 2023, Swiggy was issued a GST demand notice of INR 326.7 crore for the period between July 2020 and March 2022. Meanwhile, Zomato received a GST demand notice of INR 401.70 crore in December 2024. These financial hurdles arise at a time when both companies are heavily investing in quick commerce, a sector gaining rapid traction in India.

Adding to Swiggy’s challenges, BofA Securities recently downgraded its stock rating from ‘Buy’ to ‘Underperform,’ citing slower growth in food delivery and increasing losses in quick commerce. Swiggy’s stock, which debuted at INR 420 per share in November 2024, has since declined. The company remains focused on expansion, launching new ventures such as its B2B platform ‘Assure’ and service marketplace ‘Pyng Professional.’ Despite financial setbacks, Swiggy continues to innovate, aiming to solidify its position in the competitive Indian foodtech industry.

1. Introduction to Swiggy’s Business Model and Revenue Streams

1.1 Founding and Growth

Swiggy, founded in 2014 by Sriharsha Majety, Nandan Reddy, and Rahul Jaimini, has emerged as India’s largest online food delivery platform. The company revolutionized food ordering by offering a seamless app-based experience, ensuring fast delivery and extensive restaurant partnerships. Over the years, Swiggy expanded beyond food delivery into grocery and essential services, including Swiggy Instamart and Swiggy Genie.

1.2 Revenue and Funding Background

Swiggy operates on a commission-based revenue model, earning through restaurant partnerships, delivery fees, and advertising. The company has secured significant funding from investors like SoftBank, Prosus, and Accel. It reached unicorn status in 2018 and has since raised billions in funding to expand its logistics and quick commerce operations.

1.3 Expansion into Quick Commerce and B2B Services

Swiggy’s latest ventures include Swiggy Instamart, a quick commerce grocery delivery service, and Swiggy Assure, a B2B platform for restaurant supplies. The company also launched Pyng Professional, a marketplace for professional services, signaling its diversification strategy.

2. Details of the INR 99 Lakh Tax Demand Notice

2.1 Nature of the Tax Demand

The Deputy Commissioner of Income Tax, TDS Circle, Bengaluru, issued a notice to Swiggy for non-compliance with Section 194C of the Income Tax Act. The alleged violation pertains to the non-deduction of tax on cancellation charges paid to merchants.

2.2 Breakdown of the Tax Liability

• Tax Demand: INR 53.5 lakh
• Interest Penalty: INR 45.44 lakh
• Total Amount: INR 98.9 lakh

2.3 Swiggy’s Response and Legal Stand

Swiggy has stated that it disagrees with the tax order in the notice and believes it has a strong legal argument. The company plans to challenge the decision, asserting that it will not have a significant financial impact on its operations.

3. Recent Tax Scrutiny on Swiggy and Zomato

3.1 Previous GST Notices Against Swiggy

Swiggy receives GST demand tax notice of INR 326.7 crore in 2023 for the period between July 2020 and March 2022. The company disputed the claim and filed a legal case against the notice.

3.2 Zomato’s Tax Controversies

Zomato received a GST demand notice of INR 401.70 crore in December 2024. However, it received partial relief when Haryana GST authorities dropped a separate INR 5.9 crore tax notice.

4. Market Challenges and Stock Performance

4.1 BofA Securities Downgrades Swiggy’s Stock

BofA Securities downgraded Swiggy’s rating from ‘Buy’ to ‘Underperform,’ citing concerns over food delivery growth and quick commerce losses. The firm also reduced Swiggy’s target stock price from INR 420 to INR 325 per share.

4.2 Stock Performance Post-IPO

Swiggy’s stock debuted at INR 420 in November 2024 but has since declined. It recently closed at INR 323.75 per share on the BSE, reflecting investor concerns.

5. Learning for Startups and Entrepreneurs

5.1 Compliance with Tax Regulations

Startups must ensure compliance with tax laws, particularly with TDS deductions and GST filings. Proper legal guidance can prevent unexpected tax demands.

5.2 Diversification to Mitigate Risks

Swiggy’s expansion into quick commerce and B2B services highlights the importance of diversifying revenue streams to counter market slowdowns.

5.3 Managing Financial Expectations Post-IPO

Companies must prepare for stock market fluctuations and investor scrutiny post-IPO, ensuring sustainable growth and profitability.

6. The Startups News: Your Go-To Platform for Startup Insights

When it comes to keeping up with startup developments, The Startups News is the go-to source for entrepreneurs and investors. From breaking news on funding rounds to in-depth market trends, we provide actionable insights to navigate the evolving startup landscape. Stay ahead with our comprehensive coverage of India’s startup ecosystem.