Infosys dubs Rs 32,000 crore GST refund notice as 'pre-show cause'; Here's what tech giant told BSE
Infosys, India's second-largest IT firm, has received a Rs 32,000 crore tax notice from the Directorate of GST Intelligence for unpaid IGST on services via foreign branches from 2017-22. This amount equals Infosys's annual profit. The tax agency cites rule violations.
FollowBengaluru-based Infosys, India's second-largest IT company, has been slapped with a Rs 32,000 crore tax notice by the Directorate of GST Intelligence. The company has been asked to pay this amount in taxes, with a notice formally issued for the same. Notably, Infosys is responsible for developing the GST website.
The amount in question, Rs 32,000 crore, is equivalent to the company's entire annual profit.
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To cater to its foreign clients, Infosys has established branches overseas. Between 2017-18 and 2021-22, Infosys was supposed to pay IGST (Integrated Goods and Services Tax) on services provided through these foreign branches. However, the company did not pay this tax, which is now being viewed as tax evasion. Consequently, the unpaid tax amounts to Rs 32,403 crore for this period. Reports indicate that a notice has been issued to Infosys to settle these GST arrears.
Tax agency’s argument
According to IGST regulations, services performed by Infosys's foreign branches are considered services provided by the parent company. Under the Reverse Charge Mechanism (RCM), the service receiver, rather than the service provider, is responsible for paying the tax. Additionally, Infosys reportedly reimbursed the expenses of its foreign branches through export invoices. Due to these rule violations, the company owes Rs 32,403 crore. Reports confirm that a tax notice has been issued to Infosys to address these dues.
Company's response
Dear Sir/Madam,
This is concerning news articles published earlier today regarding the non-payment of GST related to expenses incurred by the overseas branches of the Company. The Company would like to clarify this matter:
Karnataka State GST authorities have issued a pre-show cause notice to Infosys Limited, demanding payment of Rs. 32,403 crores in GST. This notice pertains to expenses incurred by Infosys' overseas branch offices from July 2017 to March 2022.
Infosys Limited has responded to the initial pre-show cause notice. Following media coverage of the issue, the Director General of GST Intelligence has issued a similar notice on the same matter. Infosys is currently in the process of addressing this new notice.
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Infosys Limited contends that GST regulations do not apply to these expenses. The company references a recent circular (No. 210/4/2024 dated June 26, 2024) from the Central Board of Indirect Taxes and Customs, which, based on GST Council recommendations, states that services provided by overseas branches to the Indian entity are exempt from GST.
GST payments are eligible for credit or refund when exporting IT services. Infosys has settled all its GST obligations and fully complies with both central and state regulations.
This is for your information and record.
Yours sincerely,
For Infosys Limited,
A.G.S. Manikantha
Company Secretary
ACS-21918
Infosys filing in response...
— menaka doshi (@menakadoshi) July 31, 2024
The Company believes that as per regulations, GST is not applicable on these expenses.
Additionally, as per a recent Circular (circular number 210/4/2024 dated June 26, 2024) issued by the Central Board of Indirect Taxes and Customs on the… pic.twitter.com/02ObAbhgOQ
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