Infosys Contests Rs 32,403 Crore GST Demand Notice from Indian Tax Authorities

GST authorities have issued a Rs 32,403 crore notice to Infosys for services availed from its overseas branches over five years starting 2017. Infosys, in a stock exchange filing, described the notice as a pre-show cause notice and asserted that GST is not applicable on these expenses.

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The Bengaluru-based IT firm stated that Karnataka State GST authorities issued the pre-show cause notice for GST payment of Rs 32,403 crores for the period from July 2017 to March 2022. This pertains to expenses incurred by Infosys' overseas branch offices. The company has responded to this notice.

GST Applicability Dispute

Infosys also received a similar pre-show cause notice from the Director General of GST Intelligence. The company is in the process of responding to this notice as well. Infosys maintains that GST regulations do not apply to such expenses.

According to a recent circular issued by the Central Board of Indirect Taxes and Customs, based on GST Council recommendations, services provided by overseas branches to Indian entities are not subject to GST. Infosys highlighted this in their statement.

Compliance and Refund Claims

Infosys argued that GST payments are eligible for credit or refund against the export of IT services. The company stated it has paid all its GST dues and is fully compliant with central and state regulations on this matter.

The document sent by GST authorities to Infosys mentions: "In lieu of receipt of supplies from overseas branch offices, the Company has paid consideration to the branch offices in the form of overseas branch expense. Hence, M/s Infosys Ltd, Bengaluru is liable to pay IGST under reverse charge mechanism on supplies received from branches located outside India to the tune of Rs 32,403.46 crores for the period 2017-18 July 2017 onwards to 2021-22."

Financial Impact and Allegations

The Directorate General of GST Intelligence in Bengaluru believes Infosys did not pay Integrated-GST (IGST) on the import of services as a recipient. It alleges that Infosys set up branch offices outside India and included these expenses as part of its export invoice.

The demand amounting to Rs 32,403 crore exceeds Infosys' annual profit. For the June quarter, Infosys reported a net profit increase of 7.1 per cent year-on-year to Rs 6,368 crore, with revenue from operations rising by 3.6 per cent to Rs 39,315 crore compared to the previous year.

Infosys' Role in GSTN Portal

This GST demand is significant as Infosys manages the Goods and Services Tax Network (GSTN) portal. In 2015, Infosys secured a Rs 1,380 crore contract to develop the technology platform for Goods and Services Tax (GST).

Infosys continues to engage with authorities regarding this matter while maintaining its stance on compliance and eligibility for refunds or credits against export services.