Indian IT Giants Hit with Surge in GST Penalties
Over the past six to seven weeks, major Indian IT companies, including Tata Consultancy Services (TCS), Infosys, Tech Mahindra, and LTIMindtree, have faced an unexpected wave of penalty and tax orders from Goods and Services Tax (GST) departments nationwide. These firms have collectively received at least 21 penalty notices from GST offices in several states, including Punjab, Uttar Pradesh, Delhi, Visakhapatnam, Rajasthan, Bhubaneswar, Chennai, Bengaluru, and Mumbai.
Although the penalties and tax demands range from a few thousand to several crores of rupees, the firms are actively contesting most of these notices. Industry experts suggest that the increase in tax notices is partly due to the expansion of IT firms into smaller cities, where local tax authorities are now more rigorously scrutinizing operations. This heightened scrutiny follows a major Rs 32,403 crore GST evasion case against India’s second-largest IT firm, concerning services provided by its overseas branches.
From July to September, TCS received six notices from Chennai, Goa, Visakhapatnam, Uttar Pradesh, and Bengaluru, with the highest demand of Rs 1.17 crore originating from Visakhapatnam. Infosys faced six notices from states such as Odisha, Chennai, Punjab, and Bengaluru. Tech Mahindra received seven notices, while LTIMindtree encountered two during the same period.
Complex GST Compliance Triggers Surge in Penalty Notices for IT Firms
The complexity of GST compliance is exacerbated by the requirement for IT firms to register for GST in every state where they operate. This requirement has led to multiple notices across different states, primarily related to the financial year 2019-20, with the GST return deadline falling on August 31, 2024. Some firms experienced delays in filing with the Bombay Stock Exchange (BSE) due to the deadline coinciding with the weekend.
The expansion of IT companies into smaller cities began before the COVID-19 pandemic but was accelerated by it, complicating GST compliance further. Companies now face the prospect of legal battles in these smaller jurisdictions if discrepancies arise in their GST filings.
Tax experts highlight that GST authorities have their own deadlines for scrutinizing returns and issuing notices. The increase in notices is attributed to tax authorities’ thorough examination of returns for FY 2019-20 in advance of the August 2024 deadline. Notices generally include demands for additional tax, interest, and penalties due to discrepancies.
Despite the relatively modest size of these tax demands, IT firms are expected to uphold their litigation strategies and challenge the notices. Ignoring these disputes could hinder their ability to defend tax positions in the future, as their businesses continue to expand and tax liabilities potentially increase.
As the IT sector grows and spreads into smaller cities, firms are bracing for intensified scrutiny and possible legal battles, reinforcing their efforts to remain compliant with GST regulations in every operational state.
