Govt likely to withdraw Rs 33,500 crore tax demand from Infosys after backlash

India is likely to retract its demand that Infosys pay $4 billion (approx Rs 33,500) in back taxes after weeks of lobbying by the IT giant and an onslaught of criticism from the software services industry, said two government sources with direct knowledge of the plan.

Authorities last month ordered Infosys to pay the additional amount, arguing that its overseas offices should pay goods and services tax (GST) dating back to 2017.

The country’s tax investigation unit followed prevailing regulations in sending out the notice to Infosys but the federal finance ministry now believes the notice is against India’s broader tax principle of not taxing services exports, one of the sources said.

The sources declined to be identified as a formal decision has yet to be made. India’s finance ministry and Infosys did not reply to Reuters requests for comment.

Tax notices worth more than $1 billion combined to 10 foreign airlines operating in India, including Etihad and British Airways, will also likely be made redundant as the issue is similar, said the source.

The GST Council, comprised of state finance ministers and chaired by the federal finance minister, will probably make a formal decision on September 9, said a second source.

Former Infosys board member and chief financial officer Mohandas Pai has called the tax notice “outrageous” and “a case of tax terrorism at its worst.”

Last week, Infosys’ executive vice president for finance, Sunil Kumar Dhareshwar, met top bureaucrats to seek relief, arguing the tax demand was not warranted, according to a third government source.

The National Association of Software and Service Companies, an industry lobby group, called for government intervention so that the “notices do not create uncertainty and negatively impact perceptions on India’s ease of doing business.”

It also said such tax demands reflect “a lack of understanding of the industry’s operating model.”

Earlier this month, the Indian government ordered tax officials to seek directions from the administration before pursuing cases over widely prevalent industry practices so that “ease of doing business” can be maintained and litigation avoided.

Other recent key decisions that Prime Minister Narendra Modi’s government has walked back on after criticism include a new property tax, which has now been eased, and efforts to recruit private experts to senior government positions as the advertisements did not have affirmative action categories for lower castes.