Shares of Infosys Ltd are drawing attention on Friday morning following the withdrawal of a pre-show cause notice by Karnataka State authorities. The notice, which demanded Rs 32,403 crore in GST for the period from July 2017 to March 2022 related to expenses incurred by Infosys' overseas branches, has been retracted. Karnataka has now instructed Infosys to provide further responses to the DGGI central authority on the matter.

The Directorate General of GST Intelligence in Bengaluru contends that Infosys failed to pay Integrated-GST (IGST) on the import of services, arguing that Infosys improperly included expenses from its overseas branch offices in its export invoices.

On Thursday, Infosys shares closed 0.84% lower at Rs 1852.30 on the BSE.

In an exchange filing, Infosys stated that it believes GST regulations do not apply to such expenses. The company also noted that a recent circular dated June 26 from the Central Board of Indirect Taxes and Customs, based on recommendations from the GST Council, confirms that services provided by overseas branches to Indian entities are not subject to GST.

Infosys stated earlier, "It is also crucial to note that GST payments are eligible for credit or refund against the export of IT services. Infosys has settled all its GST liabilities and is fully compliant with both central and state regulations on this issue."

The Rs 32,403 crore tax demand exceeds Infosys's annual profit, which was reported as Rs 26,233 crore for FY24.

According to reports, the document from GST authorities to Infosys states: "In exchange for supplies from overseas branch offices, the company has made payments to these branches categorized as overseas branch expenses. Therefore, M/s Infosys Ltd, Bengaluru is required to pay IGST under the reverse charge mechanism for supplies received from branches outside India amounting to Rs 32,403.46 crore for the period from July 2017 to March 2022."