Infosys Faces Penalty of CA$ 135K ( ~INR 82 lakh) for Alleged Underpayment of EHT

It has been reported that the Canadian government has imposed a penalty of 1,34,822.38 Canadian dollars (approximately 82 lakh Indian Rupees) on the global IT services company, Infosys. This penalty is in relation to an alleged underpayment of the Employee Health Tax for the fiscal year that ended on December 31, 2020.

Infosys has stated that this penalty does not have a material impact on the company's financials, operations, or other activities. For a company of Infosys' scale, such penalties, while notable, are often considered in the context of their overall financial health and operational scale.

Infosys received an order from Canada's Finance Ministry on May 9. "Penalty imposed on alleged underpayment of Employee Health Tax for the year ended December 31, 2020," the filing said. It mentioned a penalty of 1,34,822.38 Canadian dollars has been imposed on the company.

Infosys has responded to the allegations. In a regulatory filing, Infosys acknowledged the penalty imposed by the Canadian government for alleged underpayment of Employee Health Tax for the year ended December 31, 2020. However, Infosys clarified that there is no material impact on the company's financials, operations, or other activities due to this penalty.

Infosys has a significant presence in Canada, with multiple office locations across the country that include Alberta, Mississauga of Ontario, Burnaby of British Columbia, and an another in Ontario (Ottawa).

The Employee Health Tax (EHT) is a payroll tax that employers in certain provinces of Canada, such as Ontario and British Columbia, are required to pay. It is calculated based on the remuneration paid to employees, which includes salaries, wages, bonuses, taxable benefits, stock options, etc. The purpose of this tax is to assist in funding health care services within the province.

In Ontario, for example, employers are required to pay EHT on remuneration paid to employees who:
  • Physically report for work at the employer's permanent establishment in Ontario.
  • Are attached to the employer's permanent establishment in Ontario.
  • Do not report to work at any of the employer's permanent establishments but are paid from or through an Ontario permanent establishment.
The tax has an exemption amount, which means that if an employer's Ontario payroll is below a certain threshold, they may not have to pay EHT. For instance, the exemption amount was increased from $490,000 to $1 million in 2020 due to the special circumstances caused by COVID-19 in Ontario, and this increase was made permanent in 2021.

Employers who exceed the exemption amount in their payroll are required to pay EHT. The tax rates and how to calculate EHT can vary, so employers need to refer to the specific rules and rates provided by the province. 
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