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Retro Tax Scrapped: Centre to Amend I-T Act to Withdraw Tax Demand on Cairn, Vodafone

FM Sitharaman earlier said, 'We will work towards raising the share of public transport in urban areas'

FM Sitharaman earlier said, 'We will work towards raising the share of public transport in urban areas'

Retro Tax Demand Removal: Union government's decision will help the country to emerge as the favourable investment destination with low tax rates, believed experts.

The Union government on Thursday proposed to amend the Income Tax Act to end controversial retrospective tax demand. The move came after back-to-back tax disputes with Cairn Energy and Vodafone Group last year. Finance minister Nirmala Sitharaman introduced The Taxation Laws (Amendment) Bill, 2021 in the Lok Sabha which seeks to withdraw which seeks to withdraw the controversial tax demands made on indirect transfer of Indian assets prior to May 28, 2012. The Bill also proposed to refund the amount paid in these cases without any interest thereon. “Bill proposes to amend I-T Act, so as to provide that no tax demand shall be raised in future on basis of said retrospective amendment for any indirect transfer of Indian assets if transaction before 28th May, 2012," said government.

This move will impact retro tax dispute cases of the Cairn Energy Plc and the Vodafone Group of United Kingdom. Both the companies had won international arbitrations against levy of retrospective taxes on them. The bill paves a way for the companies to withdraw the litigation pending in various courts, with the assurance from the Centre that the demand for retrospective tax will also be withdrawn.

“The bill introduced by government is a welcome step in resolving the pending disputes at various forums including international forum. With the introduction of taxation of indirect transfers with retrospective effect in 2012, the tax department reopened the assessment in few cases citing the said retrospective amendments. The said cases had been pending in different high courts and in some cases in arbitration. Now with this bill, the tax department will not treat the said assesses as in default provided the pending litigation is withdrawn. This effectively resolves the dispute,” Amit Singhania, partner, Shardul Amarchand Mangaldas & Co.

Union government’s decision will help the country to emerge as the favourable investment destination with low tax rates, believed experts. “The withdrawal of the retrospective amendment relating to tax on indirect transfers is a welcome step and would reignite the choice of India as a favourable investment destination coupled with the low tax rates. For the ones under dispute, the government has provided to settle them without levying any tax besides refunding any tax collected. One of the key bogeys for foreign investment was the sudden retrospective tax levy on indirect transfers - with its removal, India is bound to be more favoured by foreign players as the tax rates are also quite attractive," said Amrish Shah, Partner, Deloitte India.

“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," government further said.

“The addressal of the long pending ask of foreign investors for removal on retrospective tax levy on indirect transfers would go a long way in placing India as a more attractive investment destination and rekindle the hope that there would be no longer any ghost of retrospective taxation norms being applied," he further added.

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first published:August 05, 2021, 18:20 IST