Infosys says Karnataka govt withdrawing pre-show cause notice on GST evasion

The tax demand made by the authorities generated shockwaves, considering Infosys' track record for being one of India's best-governed firms.

IT major Infosys on August 1 said that Karnataka state authorities have withdrawn the pre-show cause notice it received a day earlier and directed the company to submit further responses to the Directorate General of Goods and Services Tax Intelligence (DGGI) related to the issue.

On July 31, India’s second-largest IT company received a demand for alleged tax evasion of over Rs 32,000 crore from the DGGI.

"The company has received a communication from Karnataka state authorities, withdrawing the pre-show cause notice and has directed the company to submit further response to DGGI central authority on this matter," the Bengaluru-based company said in a statement on August 1.

Interestingly, Infosys received the pre-show cause notice from DGGI soon after media reported that the Karnataka state GST authorities had issued the notice on the same matter, the firm informed the exchanges on July 31.

The tax demand made by the authorities generated shockwaves, considering Infosys' track record for being one of India's best-governed firms.

Infosys responded to the reports saying it has paid all dues and GST is not applicable on expenses claimed by DGGI. "Infosys has paid all its GST dues and is fully in compliance with the central and state regulations on this matter," the company said in the filing.

Reacting sharply to the development, Infosys’ former chief financial officer Mohandas Pai labelled it as 'tax terrorism' at its worst. "The finance ministry should immediately intervene. Such tax terrorism impacts investment into India in a big way," Pai, who is also the chairman of Aarin Capital, told Moneycontrol.

Pai's comments reflect the broader concerns within the business community about the potential implications of such high-profile tax demands on investor confidence and business operations in India, and for a company that is widely known for its robust compliance framework and strong governance standards.

In September 2023, Infosys had received a demand for GST totaling Rs 37.75 lakh, which was also contested by the firm.