India’s restaurant tax probe uncovers US$7.7B in alleged hidden sales using AI

INDIA – India’s Income Tax Department has uncovered what may be one of the largest tax evasion cases in the country’s restaurant industry, with investigators identifying alleged suppressed sales of Rs 700 billion (US$7.7 billion) across multiple financial years beginning 2019–2020.

The probe, led by the Hyderabad investigation unit, used forensic data analytics and AI tools to analyze 60 terabytes of transaction data from a billing software platform used by more than 100,000 restaurants nationwide.

How the Investigation Unfolded

What began as a routine examination of popular biryani chains in Hyderabad quickly snowballed into a nationwide crackdown.

Investigators accessed records from a software provider’s Ahmedabad headquarters and processed the data at the department’s digital forensic lab in Hyderabad.

The platform accounts for approximately 10% of India’s restaurant billing market, giving officials access to records tied to around 177,000 restaurant IDs.

Using generative AI and high-capacity systems, investigators mapped GST numbers to individual restaurants through open-source information, uncovering systematic manipulation.

Two Methods of Suppression Identified

Documents reveal recurring patterns of evasion. The first is “selective deletion of cash invoices,” where restaurants allegedly retained only a portion of cash entries while erasing the rest to reduce income tax and GST exposure.

The second involves “bulk deletions,” wiping bills clean for selected date ranges, sometimes covering up to 30 days, before filing returns showing only a fraction of actual sales.

State-Wise Breakdown and Ground Verification

The highest deletion activity was observed in Gujarat, Karnataka, Maharashtra, Telangana, and Tamil Nadu.

Karnataka topped the list with suspected evasion of nearly Rs 2,000 crore (approx. US$220 million), followed by Telangana at Rs 1,500 crore (approx. US$165 million) and Tamil Nadu at Rs 1,200 crore (approx. US$132 million).

To verify digital findings, officials conducted physical checks at 40 restaurants in Andhra Pradesh and Telangana, uncovering nearly Rs 400 crore (US$44 million) in suppressed sales.

Based on sample estimates, officials concluded that approximately 27% of total sales may have been hidden.

What Happens Next

Following the initial findings, the Central Board of Direct Taxes has decided to extend the investigation to a broader set of restaurants across India.

Officials believe the current discoveries may represent only “the tip of the iceberg,” as multiple other billing software platforms operate in the sector and could face similar scrutiny.

The department has not yet finalized tax demands or penalties on the concealed income, but with suppressed turnover identified at least US$7.7 billion since 2019–2020, the final liability could be substantial.

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