More IT companies likely to get ‘tax evasion’ notices after Rs 32,000 crore GST demand sent to Infosys: Report

Following a show cause notice issued to IT bellwether Infosys, tax authorities are likely to issue more such notices to major infotech services firms soon, Reuters reported citing sources. The notices will be issued in the follow-up to scrutiny of alleged evasion of tax on services by their overseas offices, it added. 

The IT company said the Karnataka State GST authorities have issued a pre-show cause notice for payment of GST of Rs 32,403 crore for the period July 2017 to March 2022 towards the expenses incurred by overseas branch offices of Infosys Limited, and added that it has responded to the pre-show cause notice. 

The RCM system mandates that the recipient of goods or services, rather than the supplier, pays the tax. It is also important to note that the GST payments are eligible for credit or refund against the export of IT services. 

In an exchange filing, Infosys stated that it has settled all dues and maintained that GST is not applicable to the expenses claimed by the DGGI. “Infosys has paid all its GST dues and is fully compliant with central and state regulations on this matter,” the company had asserted. 

“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 recommendations of the GST Council, services provided by the overseas branches to the Indian entity are not subject to GST. 

The tax document details that Infosys paid consideration to its overseas branches in the form of expenses. Consequently, Infosys is deemed liable to pay Integrated Goods and Services Tax (IGST) under the Reverse Charge Mechanism (RCM) on these supplies, amounting to Rs 32,403.46 crore from July 2017 to 2021-22.  

“This is an industry-wide issue,” the Reuters report quoted a senior tax official with knowledge of the matter. 

The overseas offices carry out projects for Indian infotech firms and provide services to international clients, among other functions.