Infosys Hit with Rs 3 Crore Tax Penalty Over Alleged Discrepancies in ITC and Payments

Infosys has been issued a penalty notice exceeding Rs 3 crores by the Deputy Commissioner of Commercial Taxes in Bengaluru. The penalty, which pertains to alleged discrepancies in tax payments and the excessive use of Input Tax Credit (ITC) for the financial year 2019-20, was disclosed by the IT giant in a statement released on Saturday.

Despite the significant sum, Infosys assured stakeholders that the penalty would not have a material impact on its financials, operations, or overall performance. The company emphasized that this development does not alter its business activities and that the relevant details will be made available on its official website.

This penalty notice comes amid 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. The investigation initially came to light in July 2024 when the DGGI flagged Infosys for allegedly evading IGST to the tune of Rs 32,403 crore. This accusation was related to services received from Infosys' overseas branches.

However, after extensive discussions, the Karnataka GST department decided to withdraw the pre-show cause notice, although the DGGI's investigation into the matter remains ongoing. In a recent development, Infosys confirmed that the DGGI had closed the pre-show cause notice proceedings for the financial year 2017-18, which involved a GST amount of Rs 3,898 crore.

The DGGI’s probe originally focused on allegations that Infosys included expenses from its overseas branches in its export invoices from India, potentially affecting the calculation of eligible refunds and raising questions about the company’s IGST liability under the reverse charge mechanism.

In response to the investigation, the National Association of Software and Service Companies (Nasscom) expressed support for Infosys, highlighting the need for consistent enforcement of government circulars that clarify the tax treatment of transactions between overseas branches and their Indian headquarters. Nasscom stressed that adherence to these guidelines is crucial to prevent companies like Infosys from facing unwarranted penalties.