In a statement, New York Attorney General Eric T Schneiderman said the USD 1-million settlement with the Indian IT firm has been reached to conclude the investigation.
It added that Infosys had failed to "properly compensate hundreds of workers and to pay applicable taxes, by systematically abusing the US visa rules in placing foreign workers at client sites in New York State".
Infosys denied any wrong-doing, saying the agreement concludes the State of New York's investigation relating to the amount of taxes the company paid in 2010-11 without any criminal or civil charges being filed.
"While this investigation centred on alleged paper work errors, the company committed no wrong-doing and denies all allegations made in this regard", the Bengaluru-based firm said.
Infosys said this settlement relates to legal issues already resolved under the 2013 settlement with the US Department of Justice and was reached by both parties to "avoid protracted litigation".
Infosys has a significant presence in New York State and provides consulting and outsourcing services to many New York-based clients in the financial sector, among other industries.
The settlement resolves a whistleblower's claims that Infosys, in the course of providing outsourcing services, routinely brought foreign IT personnel into New York to perform work in violation of the terms of their visas.
"We will not permit companies to violate our laws in order to undercut New York workers. My office is committed to ensuring that our state's labour marketplace is fair, competitive and transparent for all", the New York attorney general (NY AG) said.
The NY AG statement explained that in order to perform the services offered by Infosys in New York State, its foreign workers needed H1-B visas.
"But in order to avoid the difficulty and expense of obtaining such visas, the Office contends that Infosys knowingly and unlawfully obtained temporary visitor visas (B-1 visas) instead", it said.
The NY AG contended that B-1 visas are much easier to obtain but because they apply only to visits, B-1 visa holders are not permitted to perform work of the kind Infosys workers were sent to New York to do.
"Infosys workers using B-1 visas were doing work that would otherwise have been performed by US citizens or H1-B visa holders, and were paid significantly less than what comparable US workers or H1-B visa holders would have been paid in the same positions", the statement said.
It added that, consequently, New York was deprived of taxes that should have been paid on the higher wages that Infosys avoided by its misconduct.
The settlement includes a recovery to the State for tax damages and applicable New York False Claims Act damages and penalties.
The settlement comes as Modi is set to arrive in the US for his first bilateral meeting with Trump and the issue of H1-B visas is expected to come up in discussion between the two leaders.
The Trump administration has vowed to reform the country's immigration system. He has been critical of outsourcing firms abusing H1-B work visa programme, saying it is used to bring in cheap foreign labour.
He also seeks to revamp the lottery-based selection process under which these work visas are allotted to outsourcing companies.
In May, senior Trump administration officials accused TCS, Infosys and Cognizant of unfairly cornering the lion's share of H-1B visas, taking jobs away from American workers.