Everything you need to know about the Retrospective Tax Amendment

   In 2012, the Government made controversial changes to tax legislation that were implemented retrospectively. International firms that had previously bought assets from Indian companies were given show cause notices on the basis of retrospective amendments to pay heavy sum of Tax along with Interest and Penalties.

In the Lok Sabha, Finance Minister Nirmala Sitharaman proposes the Taxation Laws (Amendment) Bill. On Thursday 5^th August 2021, Finance and Corporate Affairs Minister Nirmala Sitharaman submitted the Taxation Laws (Amendment) Bill in the Lok Sabha to nullify the applicable retrospective tax rules that were enacted in 2012 to tax previous indirect transfers of Indian assets. On Friday 6^th August 2021, Lok Sabha passed the Taxation Laws (Amendment) Bill.

The Government has cleared the way for any retrospective tax demands by the Tax Authorities. It's a commendable step by the Indian Government, as India's ability to attract foreign investment was harmed by the 2012 retrospective taxes law, which also harmed its reputation by enabling international tribunals to seize Indian holdings overseas. It may be a huge relief for Vodafone, whose stock has been on the down this week. The telecom owes the government Rs 22,000 crore in licencing and spectrum payments.

Last year, an international arbitration panel in The Hague decided that India's $2 billion tax demand on Vodafone was wrong, and that it violated an India-Netherlands investment treaty. The tax demand made against Vodafone has now been revoked. As part of a guarantee of the sum due to Cairn, a French tribunal placed a hold on approximately 20 centrally positioned assets belonging to the Indian government last month.

More than a dozen similar lawsuits involving corporations and retrospective tax claims have been filed in India. The contentious retroactive rule was enacted by the previous Congress-led UPA administration, but the BJP government prosecuted the tax cases it filed.

Any tax demand made on transactions that occurred before May 2012 will be withdrawn, and any taxes previously collected will be returned without interest, under the proposed amendments. To be eligible, concerned taxpayers would have to drop all pending cases against the Government and pledge not to seek damages or expenses from the Government.

Nirmala Sitharaman, the Finance Minister, described the reasons for the bill to remove retrospective taxation “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.”

Further she added “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.”

If this bill is passed by the Rajya Sabha and gets ascent by the President of India, it would be a big assistance in boosting the Indian economy since many foreign investors will come in with large sums of money because India has a good potential to grow.