Infosys, one of India’s leading IT giants, has received a penalty notice of over Rs 3 crores from the Deputy Commissioner of Commercial Taxes in Bengaluru. The penalty pertains to alleged discrepancies in tax payments and excessive use of Input Tax Credit (ITC) for the financial year 2019-20. This development adds to the ongoing scrutiny of the company by tax authorities.
Minimal Impact on Financials
In a statement released on Saturday, Infosys clarified that this penalty will not materially impact its financial performance, operations, or other business activities. The company has assured its stakeholders that the penalty is not significant enough to affect its overall performance. Infosys has also made this information available on its official website to maintain transparency with its shareholders and the public.
Ongoing GST Investigations
This penalty notice follows a broader investigation by the Directorate General of Goods and Services Tax Intelligence (DGGI) into allegations of Integrated Goods and Services Tax (IGST) evasion by Infosys. In July 2024, the DGGI flagged Infosys for allegedly evading IGST amounting to Rs. 32,403 crores, related to services received from its overseas branches. However, the Karnataka GST department later withdrew the pre-show cause notice, although the DGGI’s investigation continues.
Past Allegations and Support from Nasscom
Infosys has been under scrutiny for its tax practices, particularly concerning its overseas branches. The DGGI’s investigation initially focused on whether Infosys included expenses from its overseas branches in export invoices from India, potentially affecting eligible refunds and raising concerns about IGST liability under the reverse charge mechanism.
Recently, Infosys confirmed that the DGGI had closed the pre-show cause notice proceedings for the financial year 2017-2018, which involved a GST amount of Rs. 3,898 crores. The situation has garnered support from the National Association of Software and Service Companies (Nasscom), which emphasized the need for consistent enforcement of government circulars clarifying tax treatment between overseas branches and Indian headquarters. Nasscom argued that proper adherence to these guidelines is crucial to prevent companies like Infosys from facing unfair penalties.
Conclusion
While the Rs 3 crore penalty notice may seem significant, Infosys’s reassurance that it won’t materially impact its financials or operations highlights the company’s resilience. However, the ongoing investigations and scrutiny underscore the importance of clear tax guidelines and consistent enforcement to avoid such disputes in the future.
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