Infosys Under Scrutiny for Alleged GST Evasion of Over Rs 32,000 Crore

Infosys, India's second-largest IT services company, has been issued a pre-show cause notice for alleged GST evasion amounting to approximately ₹32,403 crore. The Directorate General of GST Intelligence is investigating the Bengaluru-headquartered firm for this alleged evasion.

In a filing to the BSE, Infosys stated that Karnataka State GST authorities have demanded payment of ₹32,403 crore in GST for the period from July 2017 to March 2022. The notice pertains to expenses incurred by Infosys Ltd's overseas branch offices. The company has responded to the pre-show cause notice.

Overseas Branches and GST Implications

The Director General of GST Intelligence (DGGI) has stated that as the company establishes overseas branches to service clients in accordance with its agreements, both the branches and the company are treated as 'distinct persons' under the IGST Act. Consequently, the company has received a pre-show cause notice from the DGGI and is in the process of responding. The company believes that GST is not applicable on such expenses as per regulations.

Compliance and Recent Circular

Infosys pointed out that a recent circular issued by the Central Board of Indirect Taxes and Customs, based on recommendations from the GST Council, indicates that services provided by overseas branches to the Indian entity are not subject to GST. Infosys has clarified that GST payments related to the export of IT services are eligible for credit or refund. The company affirmed, "We have settled all our GST obligations and adhere fully to both central and state regulations." According to sources, Infosys' international branches are regarded as separate entities under the IGST Act, meaning that services offered by these branches are classified as imports and are subject to GST.

Company Faces Repeated Scrutiny from GST Department

This is not the first time the company has encountered issues with the GST Department, the very platform it helped build. However, the scale of the current investigation significantly surpasses the previous incident. In April, the company disclosed that the Odisha GST Authority had fined Rs 1.46 lakh for improperly claiming input tax credit.

Conclusion

The allegations of GST evasion against Infosys have placed the company under significant scrutiny. As the investigation by the Directorate General of GST Intelligence progresses, Infosys remains firm in its stance that the GST is not applicable to the expenses incurred by its overseas branches. The company has cited a recent circular by the Central Board of Indirect Taxes and Customs, which supports their position that services provided by overseas branches to the Indian entity are not subject to GST.

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