The Karnataka state tax authorities have withdrawn the pre-show cause notice previously issued to Infosys regarding an alleged ₹32,403 crore GST evasion. NASSCOM comes in support of Infosys, says authorities lack understanding.
The notice, which was sent on July 31st, claimed that Infosys had failed to pay Integrated Goods and Services Tax (IGST) on services received from its overseas branches between 2017 and 2022.
Infosys, however, maintained that it had fully complied with all tax regulations and paid all due GST. The company further stated that the services in question were exempt from GST under a recent government circular.
Following the withdrawal of the notice, the investigation into the matter has been shifted to the Directorate General of GST Intelligence (DGGI), a central authority. Infosys has been directed to submit a further response to the DGGI.
The Directorate General of GST Intelligence (DGGI) alleges that Infosys evaded paying Integrated Goods and Services Tax (IGST) on services imported from its overseas branches between July 2017 and March 2022. The DGGI argues that these expenses, incurred by the overseas branches and billed to the Indian entity, should attract IGST under the reverse charge mechanism (RCM).
This development has brought relief to Infosys and its shareholders, as the company’s stock had seen a dip following the initial notice. It also raises questions about the clarity and interpretation of GST regulations, especially concerning the taxation of services received from overseas branches.
NASSCOM comes in support of Infosys regarding GST notice
The National Association of Software and Services Companies (NASSCOM) has expressed its support for Infosys regarding the recent GST notice and its subsequent withdrawal. NASSCOM stated that the notice reflects a lack of understanding of the IT industry’s operating model by the authorities.
NASSCOM highlights that this issue is not unique to Infosys but affects multiple companies in the industry, leading to unnecessary litigation, uncertainty, and concerns among investors and customers. The association has been advocating for clarity on GST regulations, particularly concerning the reverse charge mechanism (RCM) and the applicability of GST to services provided by overseas branches.
NASSCOM believes that a supportive policy environment and ease of doing business are crucial for the growth of the IT sector and India’s ambition of attracting global tech investment. It has urged the government to issue clear guidelines to prevent similar issues in the future.