BENGALURU, INDIA – Indian IT giant Infosys has received a tax demand of approximately $4 billion from the state of Karnataka. The tax claim pertains to expenses incurred by the company’s overseas branches.
Infosys disclosed this development on Wednesday through a filing with the Bombay Stock Exchange, detailing the tax demand from the Indian tax authorities.
Dispute over import of services tax
The tax demand focuses on services received by Infosys from its overseas branches, which the tax authorities classify as “import of services” and subject to tax.
Infosys disputes this claim, asserting that “GST is not applicable on these expenses,” citing a government circular that clarifies the valuation of imported services. The company maintains it is “fully in compliance with the central and state regulations on this matter.”
This circular does not introduce a new policy but clarifies the treatment of imported services under India’s Goods and Services Tax (GST) regime, implemented in 2017.
Potential impact on the IT services industry
If upheld, the tax demand could significantly impact the profitability and financial planning of IT services companies operating in India.
This could also lead to increased costs for IT services globally. Infosys might face a fine equivalent to nearly one year’s profit and a quarter of its revenue.
According to Indian media reports, the dispute involves a global client serviced by Infosys with workers both in India and internationally, with expenses from offshore entities included in invoices sent from India.
This case could set a precedent on how expenses incurred by overseas branches are treated under Indian tax law, potentially leading to higher compliance costs and revised tax strategies for multinational companies.
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