Infosys gets relief on GST as DGGI closes Rs 32,400 Cr pre-show cause notice

In a major relief for Infosys, the Director General of GST Intelligence has closed pre-show cause notice proceedings against the company for FY2018-19 to FY2021-22 involving a staggering Rs 32,403 crore in GST

(Goods and Service taxes) dues.

The latest move effectively ends nearly a year-long GST saga for India's second-largest IT services firm.

Mid-last year, the goods and services tax (GST) authorities had slapped Rs 32,403 crore notice on Infosys for services availed by the company from its overseas branches for five years starting 2017.

The GST demand, in fact, exceeds Infosys's annual profits (net profit for full FY25 stood at Rs 26,713 crore), and its closure now is bound to come as a significant relief for the tech major. The Bengaluru-headquartered company, in a BSE filing, said with the receipt of the latest communication from DGGI "this matter stands closed".

"In continuation to our earlier communications on July 31, 2024, August 1, 2024 and August 3, 2024 on GST, this is to inform that the company has today received a communication from the Director General of GST Intelligence (DGGI) closing the pre-show cause notice proceedings for the FY2018-19 to 2021-22," the company said in the filing late Friday evening.

Infosys, which competes with the likes of Tata Consultancy Services, Wipro, and others for global IT contracts, said it had received and responded to a pre-show cause notice issued by DGGI for the period July 2017 to March 2022 on the issue of non-payment of IGST under Reverse Charge Mechanism.

"The GST amount as per the pre-show cause notice for this period was Rs 32,403 crore. The company had on August 3, 2024 received a communication from DGGI closing the pre-show cause notice proceedings for the financial year 2017-2018. With the receipt of today's communication from DGGI, this matter stands closed," Infosys said.

In July last year, Infosys had informed that Karnataka State GST authorities issued a pre-show cause notice for payment of GST of Rs 32,403 crores for the period July 2017 to March 2022 towards the expenses incurred by overseas branch offices of Infosys Ltd, and added that the company has responded to the pre-show cause notice.

"The company has also received a pre-show cause notice from Director General of GST Intelligence on the same matter and the company is in the process of responding to the same," the filing of July 2024 had said.

All along, Infosys maintained that GST is not applicable on these expenses. "Additionally, as per a recent circular issued by the Central Board of Indirect Taxes and Customs on the recommendations of the GST Council, services provided by the overseas branches to Indian entity are not subject to GST," Infosys had argued back in July 2024.

The tech firm had asserted GST payments are eligible for credit or refund against export of IT services. "Infosys has paid all its GST dues and is fully in compliance with the central and state regulations on this matter," the company had contended.

The document sent to Infosys by GST authorities at that point had reportedly said, "In lieu of receipt of supplies from overseas branch offices, the company has paid consideration to the branch offices in the form of overseas branch expense. Hence, M/s Infosys Ltd, Bengaluru is liable to pay IGST under reverse charge mechanism on supplies received from branches located outside India to the tune of Rs 32,403.46 crores for the period 2017-18 (July 2017 onwards) to 2021-22."

The Directorate General of GST Intelligence in Bengaluru had been of the opinion that Infosys did not pay the Integrated-GST (IGST) on the import of services as a recipient of services.

For the just-ended March quarter, Infosys reported an 11.7% decline in consolidated net profit to Rs 7,033 crore mainly on account of compensation to employees, and acquisitions during the reported period.

The company has guided for a revenue growth of 0-3% in constant currency terms in the current fiscal year, citing uncertainty in the environment.

For the full FY25, profits saw a marginal increase of 1.8% to Rs 26,713 crore; revenues climbed 6.06% to reach Rs 1,62,990 crore, exceeding its guidance of 4.5-5% for the full FY25.