Karnataka Withdraws GST Demand Notice Issued to Infosys

Infosys announced on Thursday that Karnataka state authorities have retracted the pre-show cause notice regarding a Rs 32,403 crore GST demand. The company is now required to provide further responses to the Directorate General of GST Intelligence (DGGI) on this matter.

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The Bengaluru-based IT giant had made headlines on Wednesday when GST authorities issued a notice for services availed from its overseas branches over five years starting in 2017. Infosys had described the notice as a pre-show cause notice and maintained that GST should not apply to the mentioned expenses.

GST Demand Details

According to Infosys, the Karnataka State GST authorities issued a pre-show cause notice for Rs 32,403 crore covering expenses incurred by its overseas branches from July 2017 to March 2022. The company has responded to this notice and continues to argue that GST is not applicable in this context.

In a statement, Infosys said: "The company has received a communication from Karnataka State authorities, withdrawing the pre-show cause notice and has directed the company to submit further response to DGGI central authority on this matter."

Nasscom's Response

Nasscom, the apex IT body, commented on Thursday that the tax demand highlights a misunderstanding of the industry's operating model. They noted that multiple companies face similar litigation and uncertainty. Nasscom stressed that government circulars based on GST Council recommendations should be respected to avoid creating uncertainty and negatively impacting India's business environment.

Infosys had also received a pre-show cause notice from the Director General of GST Intelligence on the same issue and is in the process of responding. The company believes that according to regulations, GST is not applicable on such expenses.

Company's Compliance

The company stated: "Additionally, as per a recent Circular...issued by the Central Board of Indirect Taxes and Customs on the recommendations of the GST Council, services provided by the overseas branches to Indian entity are not subject to GST." Infosys argued that GST payments are eligible for credit or refund against export of IT services.

Infosys has paid all its GST dues and claims full compliance with central and state regulations. The document sent by GST authorities stated: "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

The Rs 32,403 crore demand exceeds Infosys' annual profit. For the recent quarter, Infosys reported a net profit increase of 7.1% year-on-year to Rs 6,368 crore. Revenue from operations rose by 3.6% from a year ago, reaching Rs 39,315 crore.

Infosys remains firm in its stance that it has adhered to all relevant tax regulations and continues to engage with authorities to resolve this issue.