Govt. Introduces Bill To Bury Retrospective Tax

Govt. Introduces Bill To Bury Retrospective Tax

Finally, the Government of India has introduced a bill to scrap the Retrospective tax. FM has proposed a bill to amend the Income Tax Act in Parliament today.

Finance Minister Nirmala Sitharaman introduced The Taxation Laws (Amendment) Bill in the Lok Sabha to nullify the retro tax.

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In a detailed statement by the Finance Ministry –

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),

It is further proposed to provide that the demand raised for indirect transfer of Indian assets made before 28th May, 2012 shall be nullified on fulfilment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking to the effect that no claim for cost, damages, interest, etc., shall be filed. It is also proposed to refund the amount paid in these cases without any interest thereon,

The Bill also proposes to amend the Finance Act, 2012 so as to provide that the validation of demand, etc., under section 119 of the Finance Act, 2012 shall cease to apply on fulfilment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking that no claim for cost, damages, interest, etc., shall be filed,

In the past few years, major reforms have been initiated in the financial and infrastructure sector which has created a positive environment for investment in the country. However, this retrospective clarificatory amendment and consequent demand created in a few cases continues to be a sore point with potential investors. The country today stands at a juncture when quick recovery of the economy after the COVID-19 pandemic is the need of the hour and foreign investment has an important role to play in promoting faster economic growth and employment,

The issue of taxability of gains arising from the transfer of assets located in India through the transfer of the shares of a foreign company (hereinafter referred to as “indirect transfer of Indian assets”) was a subject matter of protracted litigation. Finally, the Supreme Court in 2012 had given a verdict that gains arising from indirect transfer of Indian assets are not taxable under the extant provisions of the Act.

What is retrospective tax?

India’s retrospective tax was introduced in 2012. According to this, any capital gains resulting from the transfer of shares from a foreign entity whose assets were located in India were taxable from 1962.

Also, Read | SBI To Levy Heavy Charges From July 1, 2021

Why Govt. nullifies Retrospective Tax now?

The proposal comes in the midst of India’s Cairn Energy arbitration case. The British oil and gas energy is seeking to recover $1.2 billion from the Government of India.

In 2012, the Supreme Court ruled that the Vodafone Group’s interpretation of the Income-Tax Act of 1961 was correct and that it did not have to pay any taxes on the stake purchase. But the then Finance Minister Pranab Mukherjee circumvented the ruling by proposing an amendment to the Finance Act, which gave the I-T Department power to retrospectively tax such deals. The Act was passed by Parliament in the same year, and the onus of paying the tax fell back on Vodafone.

An international arbitration tribunal in The Hague last year ruled that India’s imposition of tax liability on Vodafone, as well as interest and penalties, breached an investment treaty agreement between India and the Netherlands.

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