Infosys Under GST Intelligence Scanner for Alleged Evasion of Over Rs 32,000 Crore

Infosys, India’s second-largest IT company, according to the reports,  faced allegations of tax evasion amounting to over Rs.32,000 crore by the Directorate General of GST Intelligence (DGGI). The charges pertain to non-payment of GST on expenses incurred by the company’s overseas branches from July 2017 to March 2022. According to the DGGI, Infosys paid consideration to these branches in the form of overseas branch expenses, making them liable to pay Integrated Goods and Services Tax (IGST) under the Reverse Charge Mechanism (RCM).

Reverse Charge Mechanism

The RCM in GST requires the recipient of goods or services to pay the tax instead of the supplier. The DGGI’s investigation revealed that Infosys included expenses from its overseas branches in its export invoices from India which allowed Infosys to calculate eligible refunds based on these export values, while allegedly evading IGST on the import of services from these branches.

Compliance & Legal Framework

Under the IGST Act, 2017, overseas branches are considered separate establishments from the company. This classification means that services received from these branches are treated as imports, requiring the payment of IGST under RCM. The DGGI has now ordered that Infosys should pay Rs.32,403.46 crore for services received from its overseas branches during the specified period.

Infosys’ Response

In a formal statement to stock exchanges, Infosys addressed the allegations, stating that GST is not applicable to the expenses claimed by the DGGI. The company emphasized its compliance with all central and state GST regulations, asserting that all GST dues have been paid. Infosys is currently responding to the pre-show cause notice issued by the Karnataka State GST authorities and another from the Director General of GST Intelligence. The company also  highlighted a recent circular by the Central Board of Indirect Taxes and Customs, which indicates that services provided by overseas branches to the Indian entity are not subject to GST.

Financial Impact

The alleged tax evasion amount is substantial, equating to approximately a year’s profit for Infosys. For Q1FY25, Infosys reported a net profit of Rs.6,368 crore and consolidated revenue of Rs.39,315 crore. The outcome of this investigation could have significant financial implications for the company.

Conclusion: In conclusion, this scrutiny that Infosys received from GST authorities over alleged tax evasion related to services received from its overseas branches can have a huge financial and social impact on the company. While Infosys maintains its compliance with GST regulations, the final resolution of this case will hinge on further legal and regulatory review.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.