After $4 bln Infosys demand, India may target other IT majors, source says

NEW DELHI Aug 1- Indian authorities may issue notices soon to more major IT services firms in an investigation of alleged tax evasion related to work done by their overseas offices, a government source said on Thursday, a day after Infosys (INFY.NS), opens new tab was slapped with a $4 billion tax demand. In serving its highest-ever tax demand on Infosys, the government accused India's second-largest tech services company of evading taxes and sought 320 billion rupees ($3.8 billion), or almost all its revenue for the quarter ended June 30.

The tax demand, according to industry lobby group Nasscom, "reflects a lack of understanding of industry's operating model" and companies are facing avoidable litigation, uncertainty, and investor and customer concerns as a result of such government actions. "The government circulars issued... must be honoured in enforcement mechanisms so that notices do not create uncertainty and negatively impact perceptions on India’s ease of doing business," it continued.However, tax officials aren't limiting their inquiries to Infosys. "This is an industry-wide issue," a senior tax official familiar with the situation told , noting that other IT businesses were probably going to receive letters as well. Despite receiving "pre-show cause" warnings from the tax authorities, Infosys said late on Wednesday that it thought all applicable taxes had been paid. In a statement, the business claimed to have fulfilled its obligations and to be in accordance with both federal and state laws.

The individual was not authorized to speak to the media, so he spoke on the condition of anonymity.An email for comment was not answered by India's finance minister.Experts predicted that other tax letters for the same purported infractions would probably be forthcoming.According to Rajat Mohan, director of accounting company MOORE Singhi, "issuing such a substantial show-cause notice is likely to set a precedent, leading to similar notices being issued to other multinational companies, particularly in the IT sector."

Among other things, the foreign offices handle projects for Indian IT companies and offer services to global customers.

On Thursday, Infosys's stock fell 1% to 1,868.25 rupees.

A lengthy and drawn-out struggle may lie ahead for Infosys, according to several tax specialists.

"Going to court and getting a stay on these proceedings is the pragmatic solution for Infosys," stated Rastogi Chambers founder Abhishek Rastogi. He further stated that since the services were rendered outside of India, there should be no tax liability for the business.The goods and services tax administration in India has served over 1,000 notifications to businesses in the past year, including Ultratech Cement, Dr. Reddy's Laboratories, and Life Insurance Corporation of India.Notices have also been sent by tax authorities   to online gambling organizations, alleging they had not paid taxes totaling over one trillion rupees.

Businesses have contested these requests in courts and tribunals.

($1 = 83.7175 Rupees in India)