India is on the verge of retracting its $4 billion tax demand on Infosys, a move that could signal a major shift in the country’s tax policy. This controversial demand, issued last month, required Infosys to pay Goods and Services Tax (GST) on income from its overseas offices dating back to 2017. The notice has sparked significant backlash from both Infosys and the broader software services industry.
What Happened?
The tax demand was met with strong resistance from Infosys, the Bengaluru-based IT giant, which has been actively lobbying for relief. The company argued that the tax notice was unwarranted and has been meeting with senior government officials to present its case. Sunil Kumar Dhareshwar, Infosys’ executive vice president for finance, recently met with top bureaucrats to discuss why the demand should be retracted.
The backlash from the tech sector has also played a crucial role. Industry leaders argued that the tax demand was unjustified and could damage India’s business environment. This criticism has prompted the government to reconsider its stance. The National Association of Software and Service Companies (NASSCOM), a key industry lobby group, has been vocal in its opposition. NASSCOM emphasized that the tax notice indicated a fundamental misunderstanding of how the software industry operates and warned that such demands could create uncertainty and harm India’s reputation as a business-friendly country.
Government’s Response
According to sources cited by Reuters, the finance ministry is now reconsidering the tax demand. The tax investigation unit followed existing regulations, but there is a broader principle of not taxing service exports that may have led the ministry to believe the demand was misplaced.
The GST Council, which includes state finance ministers and is chaired by the federal finance minister, is expected to discuss this issue formally on September 9. The outcome of this meeting could also influence other tax notices sent to foreign airlines operating in India, including Etihad and British Airways, which collectively amount to over $1 billion.
Looking Ahead
If the government decides to retract the tax notice, it will be a significant victory for Infosys and could positively impact the software services industry. The decision will also be closely watched as it may set a precedent for how India handles similar tax issues in the future. The broader implications could affect international companies and their operations in India, highlighting the need for clear and fair tax policies.
