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Infosys, India's second-largest IT services company, is currently facing scrutiny from the Karnataka State GST authorities. The company has received a pre-show cause notice demanding a staggering Rs 32,403 crore in GST payments for the period between July 2017 and March 2022. This demand stems from expenses incurred by Infosys' overseas branch offices, which the GST authorities believe are subject to GST. The company, however, maintains that these expenses are not subject to GST, citing a recent circular issued by the Central Board of Indirect Taxes and Customs based on the recommendations of the GST Council.
Infosys' position is that GST is not applicable on expenses incurred by its overseas branch offices. The company argues that services provided by these overseas branches to the Indian entity are not subject to GST, as per the aforementioned circular. Furthermore, Infosys asserts that any GST payments it has made are eligible for credit or refund against the export of IT services. The company emphasizes its full compliance with all relevant central and state regulations pertaining to GST, stating that it has paid all its GST dues.
The news of this GST demand has understandably placed Infosys shares in focus. While the company is confident in its position and is actively responding to the pre-show cause notice, the potential financial implications of this issue cannot be ignored. The share price has been impacted by this development, although the company's strong performance and optimistic outlook, as reflected in its recent Q1 results, continue to attract investors. Notably, the valuation gap with its competitor, Tata Consultancy Services Ltd (TCS), is anticipated to narrow in the near future, with analysts suggesting a 'Buy' rating on Infosys shares, citing strong recovery prospects and an attractive dividend yield of over 3%. This latest development underscores the complexities of navigating tax regulations in the globalized IT industry and highlights the importance of robust compliance frameworks for multinational companies operating in India.
Source: Infosys shares in focus amid Rs 32,403 crore GST demand notice; what IT firm says