Swiggy, a leading food delivery platform in India, is currently liable to pay Goods and Services Tax (GST) of ₹158 crore from the Directorate General of GST Intelligence (DGGI). The incident has raised concerns within the business community about tax compliance and the potential consequences for similar enterprises. Read more about what could be the reasons behind the tax notice to Swiggy, and how businesses can protect themselves from such challenges:

Notice to Swiggy

In December 2023, a show-cause notice was sent to Swiggy from the Pune zonal unit of DGGI, alleging non-payment of GST on delivery fees collected from customers between July 2020 and March 2022. The authorities argue that Swiggy did not pay appropriate GST on these charges, which resulted in substantial tax. The

The main issue is about the classification and taxation of delivery fees. Usually, delivery partners who are Swiggy's gig workers receive payments based on the number of orders they fulfil. A delivery fee is charged for this service. The fee should be subject to GST, the officials said. Swiggy has calculated these delivery fees in its revenue and noted the payouts to delivery partners as expenses. This accounting method has led to disputes with tax authorities regarding the applicability of GST on the delivery component.

Why has that happened?

There are several factors that led to the tax notice for Swiggy:

Ambiguity in tax rules: The GST framework, introduced in 2017, was aimed at streamlining taxation but was ambiguous on certain areas such as taxation of delivery services through e-commerce platforms. This lack of clarity has led to different interpretations and compliance challenges.

The working model of delivery platforms: Platforms like Swiggy work with a large network of gig workers who are not formal employees. The contractual nature of these relationships and the associated financial transactions have complicated the exact determination of tax liabilities.

Regulatory scrutiny: As digital platforms have grown in leaps and bounds, they have come under increased scrutiny by the tax authorities with an aim to ensure compliance and maximise revenue.

How to Protect Your Business from Tax Risks

Stay informed and compliant: Accurate and detailed financial records can help you confirm your tax positions and facilitate smooth interactions with the tax authorities.

Keep transparent financial records: Accurate and detailed financial records can help you confirm your tax positions and facilitate smooth interactions with the tax authorities.

Seek professional guidance: Consulting with chartered accountants or tax advisors can provide advice on complex tax laws and help in formulating compliance strategies.

Respond promptly to tax notices: If you receive a tax notice, treat it promptly and thoroughly. Understand the specifics of the notice, gather the necessary documentation, and provide a clear response within a specified time frame.

Advocate for regulatory clarity: Engage with industry associations to collectively seek clarifications from tax authorities on ambiguous provisions. Collaborative efforts will lead to more accurate guidelines and reduce the likelihood of future disputes.

The tax notice issued to Swiggy is a testament to the complexities and challenges that businesses face in the evolving tax landscape. By ensuring early compliance, keeping meticulous records, and seeking professional advice, businesses can better overcome these challenges and reduce the risk of adverse tax actions.