Notes to the consolidated financial statements
2.17 Income tax
Income tax expense in the statement of comprehensive income comprises :
in 
crore
Year ended March 31, |
||
2011 |
2010 |
|
Current taxes |
||
Domestic taxes |
2,060 |
1,594 |
Overseas taxes |
564 |
465 |
2,624 |
2,059 |
|
Deferred taxes |
||
Domestic taxes |
(95) |
(474) |
Overseas taxes |
(39) |
96 |
(134) |
(378) |
|
Income tax expense |
2,490 |
1,681 |
The entire deferred income tax for the years ended March 31, 2011 and March 31, 2010 relates to origination and reversal of temporary differences.
A reversal of deferred tax liability of 3 crore for the year ended March 31, 2011 respectively, relating to an available-for-sale financial asset has been recognized in other comprehensive income (refer note 2.2). For the year ended March 31, 2010 a deferred tax liability of 8 crore relating to an available-for-sale financial asset has been recognized in other comprehensive income.
A reconciliation of the income tax provision to the amount computed by applying the statutory income tax rate to the income before income taxes is summarized as follows :
in crore
Year ended March 31, |
||
2011 |
2010 |
|
Profit before income taxes |
9,313 |
7,900 |
Enacted tax rates in India |
33.22% |
33.99% |
Computed expected tax expense |
3,094 |
2,685 |
Tax effect due to non-taxable income for Indian tax purposes |
(788) |
(1,058) |
Overseas taxes, net |
399 |
394 |
Tax reversals |
(236) |
(489) |
Tax effect due to set off provisions on brought forward losses |
– |
(104) |
Effect of exempt income |
(3) |
(51) |
Interest and penalties |
– |
22 |
Effect of unrecognized deferred tax assets |
19 |
16 |
Effect of differential overseas tax rates |
(7) |
(16) |
Temporary difference related to branch profits |
– |
247 |
Effect of non-deductible expenses |
4 |
26 |
Others |
8 |
9 |
Income tax expense |
2,490 |
1,681 |
The overseas tax expense is due to income taxes payable overseas, principally in the U.S. The Company benefits from certain significant tax incentives provided to software firms under Indian tax laws. These incentives include those for facilities set up under the Special Economic Zones Act, 2005 and software development facilities designated as ‘Software Technology Parks’ (the STP Tax Holiday). The STP Tax Holiday is available for ten consecutive years, beginning from the financial year when the unit started producing computer software or April 1, 1999, whichever is earlier. The Indian government, through the Finance Act, 2009, has extended the tax holiday for the STP units until March 31, 2011. Most of the Company’s STP units have already completed the tax holiday period and for the remaining STP units the tax holiday will expire by the end of March 31, 2011.
Under the Special Economic Zones Act, 2005 scheme, units in designated special economic zones which begin providing services on or after April 1, 2005 are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50% of such profits or gains for a further five years. Certain tax benefits are also available for a further period of five years subject to the STP unit meeting defined conditions.
Infosys is subject to a 15% Branch Profit Tax (BPT) in the U.S. to the extent of the U.S. branch’s net profit during the year is greater than the increase in the net assets during the year, computed in accordance with the Internal Revenue Code. As of March 31, 2011, Infosys’ U.S. branch net assets amounted to approximately 2,647 crore. As of March 31, 2011, the Company has provided for branch profit tax of 176 crore for its U.S. branch, as the Company estimates that these branch profits are expected to be distributed in the foreseeable future.
Deferred income tax liabilities have not been recognized on temporary differences amounting to 1,466 crore and 1,052 crore as of March 31, 2011 and March 31, 2010 respectively, associated with investments in subsidiaries and branches as it is probable that the temporary differences will not reverse in the foreseeable future.
The gross movement in the current income tax asset / (liability) for the years ended March 31, 2011 and March 31, 2010 is as follows :
in crore
Year ended March 31, |
||
2011 |
2010 |
|
Net current income tax asset / (liability) at the beginning |
(57) |
(307) |
Translation differences |
(10) |
(4) |
Income tax benefit arising on exercise of stock options |
11 |
10 |
Income tax paid |
2,856 |
1,754 |
Minimum Alternate Tax credit utilized (1) |
– |
549 |
Current income tax expense (refer note 2.17) |
(2,624) |
(2,059) |
Net current income tax asset / (liability) at the end |
176 |
(57) |
(1) Minimum alternate tax of 288 crore was recognized and utilized during the year ended March 31, 2010
The tax effects of significant temporary differences that resulted in deferred income tax assets and liabilities are as follows :
in crore
As of March 31, |
||
2011 |
2010 |
|
Deferred income tax assets |
||
Property, plant and equipment |
257 |
217 |
Minimum alternate tax credit carry-forwards |
63 |
42 |
Computer software |
24 |
25 |
Accrued compensation to employees |
26 |
– |
Trade receivables |
20 |
28 |
Compensated absences |
104 |
50 |
Accumulated subsidiary losses |
39 |
86 |
Others |
28 |
26 |
Total deferred income tax assets |
561 |
474 |
Deferred income tax liabilities |
||
Intangible asset |
(2) |
(2) |
Temporary difference related to branch profits |
(176) |
(232) |
Available-for-sale financial asset |
(5) |
(8) |
Total deferred income tax liabilities |
(183) |
(242) |
Total deferred income tax assets |
378 |
232 |
Deferred income tax assets to be recovered after 12 months |
392 |
368 |
Deferred income tax liability to be settled after 12 months |
(63) |
(175) |
Deferred income tax assets to be recovered within 12 months |
169 |
106 |
Deferred income tax liability to be settled within 12 months |
(120) |
(67) |
378 |
232 |
|
In assessing the realization capability of deferred income tax assets, the Management considers whether some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management believes that the Company will realize the benefits of those deductible differences. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.
The gross movement in the deferred income tax account for the years ended March 31, 2011 and March 31, 2010 is as follows :
in crore
Year ended March 31, |
||
2011 |
2010 |
|
Net deferred income tax asset at the beginning |
232 |
408 |
Translation differences |
9 |
3 |
Minimum alternate tax credit utilized |
– |
(549) |
Credits relating to temporary differences (refer note 2.17) |
134 |
378 |
Temporary difference on available-for-sale financial asset (refer note 2.2) |
3 |
(8) |
Net deferred income tax asset at the end |
378 |
232 |
The credits relating to temporary differences during the year ended March 31, 2011 and March 31, 2010 are primarily on account of compensated absences, accrued compensation to employees and property, plant and equipment.
Pursuant to the enacted changes in the Indian Income Tax Laws effective April 1, 2007, a Minimum Alternate Tax (MAT) has been extended to income in respect of which a deduction may be claimed under sections 10A and 10AA of the Income Tax Act. Consequent to the enacted change, Infosys BPO has calculated its tax liability for current domestic taxes after considering MAT. The excess tax paid under MAT provisions being over and above regular tax liability can be carried forward and set off against future tax liabilities computed under regular tax provisions. Infosys BPO was required to pay MAT, and, accordingly, a deferred income tax asset of 63 core and 42 crore has been recognized on the Balance Sheet as of March 31, 2011 and March 31, 2010, respectively, which can be carried forward for a period of ten years from the year of recognition.
2.18 Earnings per equity share
The following is a reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share :
Year ended March 31, |
||
2011 |
2010 |
|
Basic earnings per equity share – weighted average number of equity shares outstanding (1) |
57,11,80,050 |
57,04,75,923 |
Effect of dilutive common equivalent shares – share options outstanding |
1,88,308 |
6,40,108 |
Diluted earnings per equity share – weighted average number of equity shares and common equivalent shares outstanding |
57,13,68,358 |
57,11,16,031 |
(1) Excludes treasury shares
For the year ended March 31, 2011, and March 31, 2010 there were no outstanding options to purchase equity shares which had an anti-dilutive effect.
2.19 Related party transactions
List of subsidiaries :
Particulars |
Country |
Holding as of |
|
March 31, 2011 |
March 31, 2010 |
||
Infosys BPO Limited |
India |
99.98% |
99.98% |
Infosys Technologies (Australia) Pty. Limited |
Australia |
100% |
100% |
Infosys Technologies (China) Company Limited |
China |
100% |
100% |
Infosys Consulting, Inc. |
U.S. |
100% |
100% |
Infosys Technologies S. de R. L. de C. V. |
Mexico |
100% |
100% |
Infosys BPO s.r.o. (1) |
Czech Republic |
99.98% |
99.98% |
Infosys BPO (Poland) Sp.Z.o.o (1) |
Poland |
99.98% |
99.98% |
Infosys BPO (Thailand) Limited (1)(3) |
Thailand |
– |
99.98% |
Infosys Technologies (Sweden) AB |
Sweden |
100% |
100% |
Infosys Tecnologia do Brasil Ltda |
Brazil |
100% |
100% |
Infosys Consulting India Limited (2) |
India |
100% |
100% |
Infosys Public Services, Inc. |
U.S. |
100% |
100% |
Infosys Technologies (Shanghai) Company Limited (4) |
China |
100% |
– |
McCamish Systems LLC (1) (refer note 2.3) |
U.S. |
99.98% |
99.98% |
| Notes : | (1) | Infosys BPO s.r.o., Infosys BPO (Poland) Sp.Z.o.o, Infosys BPO (Thailand) Limited and McCamish Systems LLC are wholly-owned subsidiaries of Infosys BPO. |
| (2) | Infosys Consulting India Limited is a wholly-owned subsidiary of Infosys Consulting. | |
| (3) | During the year ended March 31, 2011 Infosys BPO (Thailand) Limited was liquidated. | |
| (4) | On February 21, 2011 Infosys incorporated a wholly-owned subsidiary, Infosys Shanghai. |
Infosys has provided guarantee for performance of certain contracts entered into by its subsidiaries.
List of other related parties :
Particulars |
Country |
Nature of relationship |
Infosys Technologies Limited Employees’ Gratuity Fund Trust |
India |
Post-employment benefit plan of Infosys |
Infosys Technologies Limited Employees’ Provident Fund Trust |
India |
Post-employment benefit plan of Infosys |
Infosys Technologies Limited Employees’ Superannuation Fund Trust |
India |
Post-employment benefit plan of Infosys |
Infosys BPO Limited Employees’ Superannuation Fund Trust |
India |
Post-employment benefit plan of Infosys BPO |
Infosys BPO Limited Employees’ Gratuity Fund Trust |
India |
Post-employment benefit plan of Infosys BPO |
Infosys Technologies Limited Employees’ Welfare Trust |
India |
Employee Welfare Trust of Infosys |
Infosys Science Foundation |
India |
Controlled trust |
Note : Refer note 2.12 for information on transactions with post-employment benefit plans mentioned above.
Transactions with key management personnel
The table below describes the compensation to key management personnel who comprise directors and members of the executive council :
in crore
Year ended March 31, |
||
2011 |
2010 |
|
Salaries and other employee benefits |
33 |
31 |