Restaurant tax probe widens, CBDT flags mismatches in 1.77 lakh cases, sends advisories

The Income Tax Department has stepped up scrutiny of the food and beverage sector, asking around 63,000 restaurants to review and update their income tax returns before 31 March 2026, after a nationwide verification exercise found evidence of large-scale under-reporting of sales. The action follows an investigation using AI-enabled analytics that detected discrepancies between actual transactions and declared income.

According to a press release dated 9 March 2026 issued by the Central Board of Direct Taxes (CBDT), the department conducted an investigation in November 2025 into tax evasion patterns in the restaurant industry. The release stated that several establishments were found to be deleting bulk bills and making software modifications to suppress actual sales, resulting in under-reporting of turnover in income tax filings.

Rs 408 cr sales suppression

Using advanced analytical tools, the department examined transactional data from about 1.77 lakh restaurants and compared it with income declared in tax returns. A follow-up survey carried out on 8 March 2026 across 62 restaurants in 46 cities in 22 states revealed suppression of sales amounting to nearly ₹408 crore, the press release said, adding that investigations are continuing.

The department noted that in some cases, recorded sales were not fully reflected in financial accounts or tax filings, while certain transactions were excluded from reported turnover. Based on these findings, the authorities have begun sending advisory emails and messages to identified taxpayers.

‘Saksham Nudge’ campaign

To encourage voluntary correction, the department has launched the SAKSHAM NUDGE campaign, which follows a trust-based approach rather than immediate enforcement.

“The department has commenced the SAKSHAM NUDGE campaign to guide and advise taxpayers to correct their mistakes. In the first phase, emails and SMS will be sent to the identified 63,000 restaurants, requesting them to update their returns before 31 March 2026,” the CBDT said in the press release.

Officials clarified that the communication is not a formal notice but an opportunity for businesses to review their records and make corrections before stricter action is taken.

Tax experts say restaurants should carefully check billing software, POS data and reported turnover. CA Nitin Chawla said the campaign indicates a nationwide verification exercise targeting suspected suppression of turnover and advised businesses to file updated returns under Section 139(8A) where required to avoid future penalties.

Chawla, in a link on his WhatsApp channel, said: "The Income Tax Department has initiated a nation-wide verification exercise on restaurants suspected of suppressing turnover. Under the SAKSHAM NUDGE campaign, advisory emails/messages will be sent to identified taxpayers to rectify discrepancies. Restaurants should review their records and file Updated Returns u/s 139(8A) before 31 March 2026 to avoid future consequences."

Updated return option

Under current rules, taxpayers can file an updated income tax return (ITR-U) to correct omissions by paying applicable tax and penalty. The time limit for filing updated returns has recently been extended to four years from the end of the relevant assessment year, giving businesses a chance to regularise past discrepancies.

CA Suresh Surana told the Economic Times that taxpayers who receive communication from the department should compare the transactions mentioned in the message with their filed returns and ensure that all income has been properly disclosed. If any mismatch is found, corrective action should be taken immediately.

Officials indicated that once the 31 March 2026 deadline passes, the department may initiate stricter enforcement against non-compliant entities, signalling a tougher stance on tax evasion in the restaurant sector.