Infosys Ltd, the second-largest domestic IT firm in India, has recently come under intense scrutiny following the receipt of a substantial pre-show cause notice from Karnataka State GST authorities. The notice demands a staggering ₹32,403 crore in GST payments for the period spanning from July 2017 to March 2022. This notice pertains to expenses incurred by Infosys’ overseas branch offices, prompting significant market and regulatory attention. The development is noteworthy not only due to the sheer size of the demand but also because Infosys is responsible for managing the GST Network (GSTN) portal, a critical component of India’s GST infrastructure.
Infosys has been issued a pre-show cause notice by Karnataka State GST authorities, demanding ₹32,403 crore for the period from July 2017 to March 2022. The demand is based on the premise that Infosys should have paid Integrated-GST (IGST) under the reverse charge mechanism for services received from its overseas branches. The Directorate General of GST Intelligence has raised concerns that Infosys did not comply with IGST regulations on the import of services and allegedly included these expenses as part of its export invoices. In response, Infosys has stated that it has already addressed the pre-show cause notice and is in the process of responding to an additional notice from the Director General of GST Intelligence. The firm contends that GST should not apply to expenses incurred by its overseas branches based on recent circulars from the Central Board of Indirect Taxes and Customs, which indicate that services provided by overseas branches to Indian entities are not subject to GST. Moreover, Infosys argues that the GST payments are eligible for credit or refund against the export of IT services and affirms that it has complied with all central and state regulations. Despite the GST demand, Infosys’ stock has shown strong performance recently. Over the past month, Infosys shares have rallied by 17.5%, and the stock has surged 37% over the past year. The company’s robust financial performance in the first quarter has contributed to this positive trend, with a 7.1% increase in net profit to ₹6,368 crore and a 3.6% rise in revenue from operations to ₹39,315 crore. Analysts remain optimistic, suggesting that the company’s strong growth, positive outlook, and upgraded guidance could narrow its valuation gap with Tata Consultancy Services Ltd (TCS) and further bolster its stock. Additionally, Infosys has been recommended as a ‘Buy’ by analysts, who highlight the company’s attractive dividend yield of over 3%. This recommendation reflects confidence in Infosys’ ability to manage regulatory challenges and continue its growth trajectory despite the ongoing GST dispute.
The ₹32,403 crore GST demand notice from Karnataka State GST authorities represents a significant regulatory and financial challenge for Infosys. The company’s contention that GST should not apply to overseas branch expenses and its assertion of compliance with GST regulations underscore its stance in this high-stakes matter. Despite the controversy, Infosys has demonstrated strong financial performance and positive stock market trends, reflecting investor confidence in its ability to navigate these regulatory hurdles successfully. As Infosys continues to address the GST demands, the outcome will be crucial in determining its future financial and market standing.
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