Centre moves bill in House to stop retro tax
TAXATION LAWS (AMENDMENT) ACT, 2021, PROPOSES TO AMEND THE INCOME TAX ACT, 1961, AND THE FINANCE ACT, 2012, WERE AMENDED DURING THE TENURE OF THEN FM PRANAB MUKHERJEE
NEW DELHI: The government on Thursday introduced a Bill in Lok Sabha to prevent the income tax department from raising tax demands retrospectively, a move that also attempts to end longpending disputes with foreign firms such as Vodafone Plc and Cairn Energy Plc that together involve a sum of over ₹20,000 crore. The move is widely seen as investor-friendly, and also brings to an end messy litigation and arbitration, especially with Cairn, which has seen the company staking claim to India’s overseas assets.
The Taxation Laws (Amendment) Act, 2021, introduced in the Lok Sabha by finance minister Nirmala Sitharaman, proposes to amend the Income Tax Act, 1961, and the Finance Act, 2012, which were amended during the tenure of then finance minister Pranab Mukherjee to introduce the retrospective tax law, which has, in the years since, come to stand for all that’s bad in India’s tax regime.
“The Bill proposes to amend the Income Tax Act, 1961 so as to provide that no tax demand shall be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before 28th May, 2012 (i.e., the date on which the Finance Bill, 2012, received the assent of the President),” the Bill said.
The retrospective tax law was introduced through the Finance Act, 2012 after Vodafone won a case in the Supreme Court against the I-T department’s demand of ₹11,000 crore in tax dues. The retrospective tax provisions were also applied to Cairn, when it was exiting from Cairn India Ltd in January 2014. The initial demand was for ₹10,570 crore. In 2012, the Supreme Court ruled that gains arising from indirect transfer of Indian assets were not taxable under existing laws. This prompted the then government to amend the income tax law through the Finance Act, 2012, with retrospective effect.