GST Authorities Scrutinize Infosys' Response to Rs32,403 Crore Tax Claim

Synopsis: GST authorities are reviewing Infosys' response to a Rs32,403 crore tax claim concerning services from its overseas branches between 2017-2022. Infosys asserts compliance with tax regulations, citing a recent circular that it believes exempts such services from GST. The review could potentially resolve ambiguities and offer Infosys protection from retrospective tax demands.

The Goods and Services Tax (GST) authorities are currently reviewing the response from Infosys regarding a massive Rs32,403 crore tax claim. The claim, which spans services availed from the company's overseas branches between July 2017 and March 2022, was issued under a pre-show cause notice by the Directorate General of GST Intelligence (DGGI).

This situation arose following a policy circular issued on June 26, 2024, which provided clarity on the valuation of services provided by foreign affiliates to related entities in India. According to the circular, if a domestic entity qualifies for full input tax credit, the value declared in an invoice by a foreign affiliate is considered the open market value. If no invoice is issued, the value of the service is treated as zero.

Infosys, in its response, emphasized its compliance with all relevant tax regulations and asserted that it has paid all its dues. The company cited the recent circular, arguing that GST does not apply to expenses for services provided by its overseas branches to the Indian entity. Infosys is also hopeful that ongoing reviews will resolve any ambiguities related to the GST applicability on intra-company services.

This case has garnered significant attention due to its magnitude, representing a substantial portion of Infosys' revenue. Former Infosys CFO, Mohandas Pai, criticized the tax demand, labeling it as an example of "tax terrorism" and highlighting the historical exemption of software service exports from GST.

Furthermore, the review could offer Infosys protection from retrospective tax demands under Section 11A of the Central Goods and Services Tax (CGST) Act, pending parliamentary approval. This legal provision, once enacted, could provide a framework for resolving disputes of this nature, potentially offering Infosys some relief from the ongoing tax scrutiny.