The Narendra Modi Government on Thursday introduced a bill in the Lok Sabha seeking to scrap retrospective tax demands it had made on companies such as Cairn Energy Plc and Vodafone Group of UK.
Finance Minister Nirmala Sitharaman introduced The Taxation Laws (Amendment) Bill, 2021 in the Lok Sabha which seeks to withdraw tax demands made on indirect transfer of Indian assets prior to May 28, 2012.
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 May 28, 2012.
The Bill further proposed to provide that “the demand raised for indirect transfer of Indian assets made before May 28, 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, interst, etc., shall be filed.”
Earlier, India had lost the retrospective tax demand case against Vodafone and in December last year, filed an appeal. In September, an international arbitration tribunal in The Hague had 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.
This is a great move by the government at a time when most international investors are looking at investing in India, Pranav Sayta of EY India
”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,” said Amrish Shah, Partner, Deloitte India.
Shah said 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.
This 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,” added Shah.
