EXPLAINED: Taxation Laws Amendment Bill 2021; How It Proposes To Change Controversial Retrospective Tax Law
The new Bill comes at a time the government has lost against both Vodafone and Cairn Energy in international arbitration in The Netherlands.
The Narendra Modi government tabled a Taxation Laws Amendment Bill 2021 in the Lok Sabha on Thursday seeking to amend the Income-Tax Act, 1961. As the Bill has been passed by the Lok Sabha, it aims to permanently bury the retrospective tax amendments made in the I-T laws in 2012.
The controversial retrospective tax amendments had an adverse impact on India’s image as an investor-friendly destination as the laws hounded big foreign companies, including Vodafone and Cairn Energy, with billions of dollars of tax demands.
Once passed, the Bill will bring significant relief to Vodafone and Cairn Energy, and also in other similar cases where the I-T department had raised tax demands based on the amended laws.
ALSO ON ABP LIVE | Corporates May Have To Pay For Congratulating PV Sindhu On Her Second Olympic Medal
The Bill comes at a time the government has lost against both Vodafone and Cairn Energy in international arbitration in The Netherlands. In both cases, the court ruled that India could not pursue the "alleged tax liability or any interest and or penalties" any longer.
The tribunal in the Hague has asked India to pay Cairn $1,232.8 million plus interest and $22.38 million towards arbitration and legal costs.
Introduced by Finance Minister Nirmala Sitharaman, the Bill seeks to withdraw tax demands made on indirect transfers of Indian assets before May 28, 2012.
What Happened In 2012
In 2012, when Pranab Mukherjee was the finance minister, the Indian government retrospectively changed the I-T Act to tax transactions that involved the sales or transfer of shares taking place outside India but the underlying assets were located in India.
This had been done to nullify a verdict of the Supreme Court, which had held that Vodafone could not be taxed for a purchase of a 67 percent stake in Hutchison Whampoa for $11 billion in 2007.
Mukherjee made a note of the episode in his book, ‘The Coalition Years 1996-2012’: “Despite the angst that my proposal generated at that time, and even now, both from within my party and outside, I wonder why every succeeding finance minister in the past five years has maintained the same stance.”
Since the amendment, India has been fighting legal cases against several companies in local courts as well as in international arbitration tribunals.
READ | HDFC Bank Filtering Out 2021 Graduates From Its Job Interviews? Know Truth Behind Viral Ad
It, however, took over seven years for the NDA government to withdraw the retrospective taxation law.
In the statement of objects and reasons for the Bill tabled in the Lok Sabha on Thursday, Sitharaman said retrospective taxation continues to be a “sore point” for investors.
“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 continue to be a sore point with potential investors,” she said.
“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,” Sitharaman added.
The New Bill
The new Bill tabled in Parliament Thursday proposes that no new tax demand will be raised under this retrospective amendment if the transactions took place before May 28, 2012, when the Finance Act 2012 came into effect. The tax demands made on assets transferred before May 28, 2012, will be withdrawn.
While presenting the Bill, the government said it will refund about Rs 8,100 crore collected to enforce such levies. The demand will be “nullified on fulfillment of specified conditions” in all the cases where the tax demand was made for transactions completed prior to May 28, 2012.
These conditions include withdrawal of pending litigation and an undertaking that no claims for damages and interest would be filed.
Jaideep Ghosh, COO at Shardul Amarchand Mangaldas, told ABP News: "The Government's proposal to nullify retrospective tax ought to be a big boost to the company, assuming it meets the conditions. Overall, this is an important step for our economy promoting higher tax certainty and improved investment climate."
IPL Auction 2025
Top Headlines
Trending News
