Delhi banquet halls get notices for 'massive' tax evasion in wedding biz

Tax notices are going out to hundreds of banquet halls and other wedding-related entities in Delhi, as the authorities say they have discovered huge evasions in the business.

“We found less than 20 events reported from Delhi NCR where the expenditure was above Rs 2 lakh each, in the past one year”, said a tax official aware of the developments.

If taken at face value, it would mean that each event in banquet halls accommodated only about 100 people per night, assuming an average plate charge of Rs 2,000 per person. There is no inventory of wedding-related venues in Delhi NCR, with websites offering a listing of more than 2,000 places.

“The scale of evasion is obviously massive”, the official said. The Central Board of Indirect Taxes and Customs (CBIC) and Central Board of Direct Taxes (CBDT) were taken aback by the extent of under reporting in GST records filed. Banquet halls have to pay tax at the rate of 18 percent in most cases. There is mis-declaration of GST as well as the income tax liability by the owners of these properties, said the official.

Based on GST records, the income tax department’s investigation arm has begun to piece together the evidence and send out notices. While there were roving notices in earlier eras, bringing together of the tax data from both departments, it is expected, will make them difficult to avoid.

Given the scale of weddings and related functions in most cities, the Delhi notices could become test cases for applying in other cities too. A former revenue secretary said, it is surprising that the tax departments of the central government have to step in. These should instead be pursued by the state tax machinery, which has obviously not happened since they have more eyes on the ground, he said.

The income tax department is worried that cash in circulation has risen to 14.6 percent of the broad money, as per data from the Reserve Bank of India July 1, 2022. Conduits like marriage functions and related expenditure, it is estimated, provide a big opportunity to use such unaccounted cash. Deep Narain Mukherjee, visiting professor of finance at IIM Kolkata, said it is obvious people in the higher income group are finding ways to beat the system.

“The tax department has to show it is interested in chasing this cash, non-invasively”, he added.