According to Nasscom, the issue involves the applicability of GST through the reverse charge mechanism (RCM). “The GST enforcement authorities have been issuing notices for remittance by the Indian head office to its foreign branches for cases where there is no service between the head office and the foreign branch for this RCM, ignoring that this is not a case of ‘import of service’ by the head office from the branch,” the IT association added.
Need for clearer guidelines
The increased tax burden could influence business decisions, such as the location of operations and the structuring of international projects. Companies might become more cautious in their international dealings to avoid hefty tax demands.
Furthermore, the case underscores the need for clearer guidelines and streamlined processes in India’s tax administration. Prolonged legal battles and administrative hurdles could complicate the business environment for not just Indian IT services firms but even the likes of Accenture, Cognizant, and IBM, which have a large part of their development teams based in India.
