According to two government officials with direct knowledge of the plan, India is set to back down from its demand that Infosys pay $4 billion in unpaid taxes following weeks of lobbying by the IT giant and a barrage of criticism from the software services sector.
Authorities ruled that Infosys' foreign operations need to pay goods and services tax (GST) going back to 2017 and last month ordered the company to pay the extra sum.
The warning was sent to Infosys by the nation's tax investigation unit in accordance with the law, but the federal finance ministry now feels that the notice violates India's larger tax concept of not taxing services exports, according to one of the sources.
The source stated that because the problem is identical, tax notifications totaling more than $1 billion to ten international airlines that operate in India, including British Airways and Etihad, will probably also be rendered unnecessary.
According to a second source, the GST Council, which is presided over by the federal finance minister and consists of state finance ministers, is expected to formally announce its decision on September 9.
Mohandas Pai, the chief financial officer and former board member of Infosys, described the tax notice as "outrageous" and "a case of tax terrorism at its worst."
According to a third government source, Infosys' executive vice president for finance, Sunil Kumar Dhareshwar, met with top officials last week to request relief, saying that the tax demand was unwarranted.
A lobbying organization representing the sector, the National Association of Software and Service Companies, demanded government action to ensure that the "notices do not create uncertainty and negatively impact perceptions on India's ease of doing business." Additionally, it stated that these tax demands are a reflection of "a lack of understanding of the industry's operating model."
In an effort to preserve "ease of doing business" and prevent litigation, the Indian government instructed tax authorities earlier this month to consult with the administration before pursuing matters pertaining to commonly accepted industry practices.
The government of Prime Minister Narendra Modi has also recently backed down from controversial decisions, such as the recently eased new property tax and the efforts to appoint private experts to senior government positions despite the lack of affirmative action provisions for lower castes in the job advertisements
