Retro tax law scrapped; Taxation Law (Amendments) Act 2021 gets Presidential assent

The bill which has now become a law amends the Finance Act, 2012, and the Income Tax Act, 1961, nullifying demands raised on transactions prior to May 28, 2012. Tax the indirect transfer of Indian assets will be applied prospectively from this date.

The law provides a framework for resolving international arbitration cases that the government has lost, namely those filed by Vodafone Group Plc and Cairn Energy and 15 others stemming from the retrospective tax law.

Cairn Energy, Vodafone and about half a dozen of the companies are learnt to have reached out to the government for settling lawsuits or legal proceedings ongoing in various fora. Some have sought clarity on refund amounts and the details of the new law.

As per the law, the government will withdraw all tax demands levied retrospectively and also refund taxes collected and settle cases if the companies withdraw challenges filed in all legal forums.

The government has collected Rs 8,089 crore in taxes in four of them, including Rs 7,880 crore from Cairn, which will be refunded. No interest will be paid on the taxes refunded.

The government will now issue rules and procedures for companies to settle their litigations.

Prime Minister Narendra Modi said the decision to do away with retrospective taxation sends a clear message to investors that India is opening its doors to new possibilities, emphasising that the government has the will to deliver on its promises.

India’s decision shows commitment and policy consistency besides giving a clear message to all investors that it will deliver on its pledges, Modi said.

Finance minister Nirmala Sitharaman said during discussion in Parliament earlier this week that the step to strike down the retrospective application of the law could not be taken earlier as Jaitley had said the government would wait for the ongoing two cases to reach their logical conclusion. That happened in September 2020 (Vodafone) in one and December 2020 (Cairn) in the second.

Those cases were studied in detail and since the budget session had to be shortened, the government introduced the bill at the next available opportunity, the finance minister said.