An income tax investigation that started with popular biryani restaurants in Hyderabad has led to the uncovering of what officials describe as a huge tax evasion scheme in the Indian food and restaurant sector. What began as a regular compliance check soon revealed that many eateries may have been hiding billions of rupees of sales from tax authorities over several years, causing one of the most significant alleged tax frauds in recent times.

The Income Tax Department’s Hyderabad unit conducted an in-depth analysis of billing records from a widely used restaurant billing software. This software is installed in over 1.7 lakh restaurants across India, and data from it became central to exposing the scam.

As part of the probe, officials accessed and analysed nearly 60 terabytes of electronic billing data, covering the 2019-20 to 2025-26 financial years. This enormous amount of sales information showed that the total business recorded through this system was approximately ₹2.43 lakh crore during the period. But the Income Tax Department believes that a significant portion of this turnover was never reported properly for tax purposes.

What first drew the attention of tax officials were notices of discrepancies between reported revenue and actual billing activity in some Hyderabad biryani restaurants. On deeper inspection, investigators noticed patterns of manipulated billing entries, particularly those involving cash sales.

Here are some of the key methods used to hide sales:

• Selective deletion of bills: Restaurants were found to erase records of cash transactions after customers had paid, likely to avoid higher tax liability on unreported income.
• Bulk deletions: In certain cases, entire blocks of bills, sometimes covering up to 30 days of transactions, were removed from the system.
• Under-reporting in tax returns: Some eateries didn’t bother to delete records at all but reported far lower sales figures in their tax filings.

These tactics meant that the actual turnover of many restaurants, especially cash sales, which are harder for authorities to trace, was kept far below reality when taxes were calculated and paid.

The department’s preliminary analysis suggests that since the 2019-20 fiscal year, eateries may have suppressed turnover worth at least ₹70,000 crore. This means billions of rupees in sales were likely not included in tax calculations.

From the data accessed so far:

• Billing deletions alone accounted for over ₹13,317 crore of missing sales across India.
• In Andhra Pradesh and Telangana, suppressed sales were recorded at more than ₹5,141 crore.
• A physical and digital verification of just 40 restaurants in these two states uncovered nearly ₹400 crore in unreported sales.

Officials also found that in some states, such as Karnataka, Telangana, Tamil Nadu, Maharashtra, and Gujarat, significant billing suppression was happening. Karnataka alone showed deletion cases worth around ₹2,000 crore, while both Telangana and Tamil Nadu exceeded ₹1,200 crore in suspected hidden sales.

To manage the enormous volume of billing records, the tax department employed big data analytics and advanced tools like artificial intelligence (AI), including Generative AI. These tools were used to map GST numbers, link records to specific restaurants, match them with publicly available data, and quickly spot patterns across millions of entries.

Much of this work took place at the department’s digital forensic and analytics lab in Hyderabad after accessing data from the billing software provider’s centre in Ahmedabad.

At this stage, authorities are still finalising the calculations and determining the total amount of taxes due, including penalties and potential prosecution for those involved. The current findings suggest that what has been uncovered so far is only a fraction of the total evasion, as several other billing systems are yet to be analysed.

The revelation has highlighted the vulnerability of digital billing systems to manipulation, even when they are widely used. It also demonstrates how modern data analysis can help tax agencies detect fraud that traditional audits might miss.

Authorities may now issue notices, recover unpaid taxes, and tighten scrutiny of digital billing practices within the food and hospitality industry to prevent such large-scale evasion in the future.