India’s IT firms face scrutiny after $4Bn Infosys tax demand
NEW DELHI, INDIA — Following a substantial $4 billion tax demand on Infosys, Indian authorities are poised to extend their scrutiny to other major IT services firms.
A government source revealed to Reuters that this move stems from allegations of tax evasion related to work conducted by their overseas offices.
The action against Infosys, India’s second-largest tech services company, has set a precedent that could impact the entire industry.
Infosys tax demand sparks industry concerns
The tax demand on Infosys nearly equals the company’s revenue for the quarter ending June 30.
This unprecedented demand has raised alarms within the industry, with Nasscom, the leading IT industry body, criticizing the government’s approach.
Nasscom stated that the demand “reflects a lack of understanding of the industry’s operating model” and warned of the potential for “avoidable litigation, uncertainty, and concerns from investors and customers.”
Potential for wider tax notices
The investigation is not limited to Infosys. A senior tax official told Reuters that this is an “industry-wide issue,” suggesting that other IT companies might soon receive similar notices.
This expansion of the investigation could lead to significant legal battles as companies defend their tax practices.
Legal experts predict prolonged court battles
Meanwhile, tax experts foresee a lengthy legal struggle for Infosys and potentially other firms.
Abhishek Rastogi, founder of Rastogi Chambers, advised that “the pragmatic solution for Infosys lies in going to court and getting a stay on these proceedings.” He emphasized that services provided outside India should not be subject to Indian taxes.
Wider implications for the IT sector
The broader implications of this tax crackdown are significant. Rajat Mohan, director at accounting firm MOORE Singhi, noted that issuing such a substantial notice to Infosys is likely to “set a precedent, leading to similar notices being issued to other multinational companies, particularly in the IT sector.”
Government stance and industry response
The Indian finance ministry has yet to release a statement on the potential for further tax notices.
Meanwhile, Infosys maintains that it has complied with all relevant tax regulations and has paid its dues. The company also revealed that they have received “pre-show cause” notices but believes the taxes in question have been settled.
