A government source indicated on Thursday, one day after Infosys was hit with a $4 billion tax demand, that Indian tax officials may soon send warnings to more large IT services companies as part of an investigation into suspected tax evasion connected to work done by their overseas headquarters. The government demanded taxes from Infosys, the country’s second-largest computer services company, amounting to nearly all of its revenue for the quarter that concluded on June 30. This is the government’s highest-ever demand for taxes. Infosys is accused of dodging taxes. Despite receiving “pre-show cause” warnings from the tax authorities, Infosys said late on Wednesday that it thought all applicable taxes had been paid. In a statement, the business said it had fulfilled its obligations and complied with federal and state
However, tax officials aren’t limiting Infosys ability to handle their inquiries. A senior tax official with knowledge of the situation told Reuters, “This is an industry-wide issue,” and that warnings were probably going to be sent to some other IT companies. The individual was not authorized to speak to the media, so he spoke on the condition of anonymity. An email for comment was not immediately answered by India’s finance minister. Experts predicted that other tax letters for the same purported infractions would probably be forthcoming. According to Rajat Mohan, director of accounting company MOORE Singhi, “issuing such a substantial show-cause notice is likely to set a precedent, leading to similar notices being issued to other multinational companies, particularly in the IT sector.”
Among other things, the foreign offices handle projects for Indian IT companies and offer services to global customers. On Thursday, Infosys’s stock fell 1% to 1,868.25 rupees. A lengthy and drawn-out battle may lie ahead for Infosys, according to several tax specialists. “Going to court and getting a stay on these proceedings is the pragmatic solution for Infosys,” stated Rastogi Chambers founder Abhishek Rastogi. He further stated that since the services were rendered outside of India, there should be no tax liability for the business. The goods and services tax administration in India has served over 1,000 notifications to businesses in the past year, including Ultratech Cement, Dr. Reddy’s Laboratories, and the Life Insurance Corporation of India. Online gambling companies have also received letters from tax authorities seeking payment of around 1 trillion rupees in taxes that they have allegedly avoided. Businesses have contested these requests in courts and tribunals.