Swiggy, a prominent food delivery platform in India, has been issued a tax demand notice amounting to ₹98.5 lakh by the Income Tax Department for the fiscal year 2018-2019. The notice cites non-deduction of tax at source (TDS) under Section 194C of the Income-tax Act, 1961, specifically concerning cancellation charges paid to merchants.​ 

 

Details of the Tax Demand

The Deputy Commissioner of Income-tax, TDS Circle – 3(1), Bangalore, issued the order, which includes: 

• Tax Amount: ₹56,96,125​ 

• Interest: ₹41,58,171​ 

• Total Demand:​ ₹98,54,296​ 

This demand pertains to Swiggy's alleged failure to deduct TDS on cancellation fees reimbursed to restaurants when customers cancel orders. Under Section 194C, entities are required to deduct TDS on payments made to contractors or subcontractors.​ 

 

Swiggy's Response and Legal Standpoint

Swiggy has expressed its intent to challenge the order before the appropriate appellate authority, asserting that it has strong arguments against the claims made by the tax department. The company maintains that this order will not have any significant adverse impact on its financials or operations.​ 

 

Implications for Tax Laws and the Food Delivery Industry

This development highlights the complexities and evolving interpretations within tax laws as they apply to digital platforms and the gig economy. The core issue revolves around whether cancellation charges paid to merchants constitute payments to contractors, thereby necessitating TDS under Section 194C. A resolution in this case could set a precedent, influencing how similar platforms manage TDS deductions and structure their financial agreements with partners.

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Legal Perspectives

Legal experts and law firms specializing in taxation and corporate law will closely monitor this case. The outcome may provide clarity on the applicability of TDS provisions to various charges and fees prevalent in the digital services sector. It also underscores the importance for companies to engage with knowledgeable lawyers to navigate the intricate landscape of tax compliance and to proactively address potential liabilities.

 

Conclusion

As Swiggy prepares to appeal the tax demand, the case underscores the critical need for digital service providers to stay abreast of tax regulations and ensure compliance to mitigate legal and financial risks.

 

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