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The Indian IT giant Infosys has been embroiled in a major tax evasion case concerning alleged improper tax payments on services provided by its overseas branches. The Karnataka state GST watchdog, which initially issued a pre-show-cause notice to the company, has now withdrawn it, directing Infosys to instead submit further responses to the central authority, the Directorate General of GST Intelligence (DGGI).
The DGGI initiated an investigation into Infosys in June 2024, alleging that the company evaded integrated goods and services tax (IGST) for a five-year period ending in fiscal year 2022. The tax authority claimed that Infosys set up branch offices abroad to conduct business and included the expenses incurred by these overseas branches as part of its export invoice from India. According to the DGGI, under the IGST Act, Infosys and its overseas branches are treated as separate entities, and the company should have paid IGST on the import of services received from its foreign branches.
Infosys, however, maintains that GST is not applicable on these expenses, citing a recent circular issued by the Central Board of Indirect Taxes and Customs on the recommendations of the GST Council. This circular states that services provided by overseas branches to Indian entities are not subject to GST. The company is confident in its position and has expressed its willingness to cooperate with the DGGI’s investigation and provide further responses to clarify its stance.
This case is significant as it involves a substantial sum of ₹32,403 crore in potential tax evasion, making it one of the largest cases since the implementation of the GST regime in India. The outcome of this investigation will have far-reaching implications for the IT industry and could potentially set a precedent for how overseas branch operations are treated under GST regulations in India.