The GST Council, which includes state finance ministers and is chaired by the federal finance minister, is expected to make a formal decision on September 9.
New Delhi: India is expected to retract its demand that Infosys pay $4 billion (approximately Rs 33,500 crore) in back taxes following intense lobbying by the IT giant and significant criticism from the software services sector, according to two government sources familiar with the matter.
Last month, Indian authorities ordered Infosys to settle this additional amount, arguing that its overseas offices should have been paying goods and services tax (GST) dating back to 2017. The tax investigation unit, adhering to existing regulations, issued the notice. However, the federal finance ministry now believes this notice contradicts India’s broader tax principle of not taxing services exports, one source stated.
The sources, who requested anonymity as no formal decision has been announced, noted that the finance ministry and Infosys have not responded to Reuters’ requests for comment. Similar tax notices totaling over $1 billion issued to ten foreign airlines operating in India, including Etihad and British Airways, are also likely to be rescinded due to the similar nature of the issue, the source added.
A formal decision is expected from the GST Council, which includes state finance ministers and is chaired by the federal finance minister, on September 9, according to a second source.
Former Infosys board member and ex-CFO Mohandas Pai has denounced the tax notice as “outrageous” and described it as “a case of tax terrorism at its worst.”
Last week, Infosys’ executive vice president for finance, Sunil Kumar Dhareshwar, met with senior officials to argue against the tax demand, asserting it was unwarranted, according to a third government source.
The National Association of Software and Service Companies (NASSCOM), an industry lobby group, has called for government intervention to prevent such notices from creating uncertainty and negatively affecting perceptions of India’s ease of doing business. They also criticized the tax demands as indicative of a misunderstanding of the industry’s operating model.
Earlier this month, the Indian government instructed tax officials to seek administrative directions before pursuing cases related to widely practiced industry norms to maintain “ease of doing business” and avoid litigation.
Recent decisions by Prime Minister Narendra Modi’s government that faced backlash include modifications to a new property tax and changes to recruitment practices for senior government positions, which had not initially included affirmative action categories for lower castes.
