The government is likely to withdraw its tax demand notice to Infosys, asking them to pay $4 billion in back taxes, following extensive persuasion by the IT giant and significant criticism from the software services sector, according to a Reuters report citing two government sources familiar with the matter.
Last month, authorities instructed Infosys to settle this additional amount, asserting that its overseas offices were liable for goods and services tax (GST) dating back to 2017. India's tax investigation unit issued the notice to Infosys in accordance with existing regulations. However, the federal finance ministry now believes that the notice contradicts India's broader tax principle of exempting service exports from taxation, one of the sources said in the report.
The report further reveals that the tax notices, which account for over $1 billion, issued to ten foreign airlines operating in India, including Etihad and British Airways, are also expected to be rendered invalid due to the similar nature of the issue.
A second source indicated in the report that the GST Council, composed of state finance ministers and chaired by the federal finance minister, is anticipated to reach a formal decision on September 9.
Previously, former Infosys board member and chief financial officer Mohandas Pai has described the tax notice as "outrageous" and characterised it as "a case of tax terrorism at its worst."
According to a third government source in the report, Infosys' executive vice president for finance, Sunil Kumar Dhareshwar, met with senior bureaucrats last week to request relief, contending that the tax demand was unjustified.
The National Association of Software and Service Companies, an industry body, has urged the government to intervene to prevent the tax notices from causing uncertainty and harming India's reputation for ease of doing business. The group also criticised the tax demands as indicative of a misunderstanding of the industry's operating model.
Earlier this month, the Indian government instructed tax officials to consult with the administration before pursuing cases related to standard industry practices.