What began as routine raids at a few restaurants in Hyderabad last November has exposed a nationwide tax evasion racket worth Rs 70,000 crore - approximately $8.4 billion - raising uncomfortable questions about India's informal economy as the country positions itself as the world's fifth-largest economy.
The Income Tax Department's probe, conducted under Section 133A of the Income Tax Act, analyzed nearly 60 terabytes of transactional data spanning six financial years from 2019-20 to 2025-26. Officials say the billing software in question is used by more than one lakh restaurants and accounts for about 10 percent of India's restaurant market.
Backend analysis revealed total billing of around Rs 2.43 lakh crore during the period, of which Rs 13,317 crore was flagged as "post-billing deletions" - indicating systematic manipulation of sales data.
Here's the modus operandi that has tax authorities alarmed: Restaurants reportedly entered all transactions - including card, UPI and cash payments - into their billing system for internal control. But portions of cash invoices were selectively deleted before filing returns, according to India Today, lowering reported income.
In some cases, restaurants allegedly wiped billing records for selected date ranges - sometimes up to 30 days - and filed income tax returns reflecting only a fraction of actual sales.
State-wise data showed Karnataka recording the highest deletion figures at about Rs 2,000 crore, followed by Telangana (Rs 1,500 crore) and Tamil Nadu (Rs 1,200 crore). The top five states where evasion was detected include Tamil Nadu, Karnataka, Telangana, Maharashtra and Gujarat.
A billion people aren't a statistic - they're a billion stories. But when India's restaurant industry - supposedly modern, tech-enabled, card-payment-accepting - conceals Rs 70,000 crore in sales, it reveals how deeply the shadow economy still runs through supposedly formal sectors.
In Andhra Pradesh and Telangana, analysis of 3,734 PANs pointed to alleged sales suppression of Rs 5,141 crore over five years. A detailed probe of just 40 restaurants in the two states detected suppression of nearly Rs 400 crore, with officials estimating that up to 27 percent of sales may have gone unreported in some cases.
Investigators used Artificial Intelligence and Generative AI tools to analyze data linked to 1.77 lakh restaurant IDs, mapping GST numbers and PANs using open-source information. The forensic examination was carried out at the department's digital lab at Aayakar Bhavan in Hyderabad.
The Central Board of Direct Taxes (CBDT) has expanded the investigation to other parts of the country. Officials clarified that the findings relate to one billing software platform and said other systems used in the restaurant industry may also be scrutinized.
For Prime Minister Narendra Modi's government, which has championed formalization of the economy through GST and digital payments, this scam is embarrassing. The very technology meant to ensure compliance - billing software, digital payments - was allegedly weaponized to evade taxes more efficiently.
The department said action will be taken against entities found to have suppressed turnover and evaded taxes. But the larger question remains: If India's restaurants - visible, licensed, GST-registered businesses - can hide $8.4 billion in sales, what does that say about the shadow economy's true size?
