The Income-Tax Department has slapped a tax demand of over Rs 450 crore on software giant Infosys Technologies for wrongfully claiming tax exemption on onshore services by declaring them as software exports, Parliament was informed today.

Onshore software development is the practice wherein Indian companies send their software engineers on short assignments (3-6 months) to companies based in Europe, the US, and other nations.

“A notice has been issued to Infosys.. for the assessment year 2007-08 as demand of Rs 657.81 crore was created... which was revised to Rs 456.38 crore in a rectification order,” the Minister of State for Finance, Mr S.S. Palanimanickam, said in a written reply to the Lok Sabha.

He further said, “Revenue from software development activity and technical manpower deputed abroad have not been considered as export income eligible for deduction under 10A/10B/10AA of the Income-Tax Act, 1961.”

The sections pertain to tax-free income arising out of exports. However, he added that the company has claimed the revenues generated from onshore software development activities and deputation of technical manpower abroad as related to business activities conducted out of its Software Technology Park and Special Economic Zone units in India as eligible for income-tax deduction.

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