The Economy of our country is at a point when quick recovery is necessary and foreign Investment can play one of the most important roles in this. Foreign Investment is necessary for faster economic growth and employment.  We all are pretty much aware of the fact that how China has grown in these past years with the help of Foreign Investments.

The Government of India by understanding the need of the hour and uncertainty among the foreign investors towards Indian Tax Laws took an amazing step this Thursday (5th August 2021) by proposing a Taxation Laws (Amendment) Bill, 2021 to amend the Income-tax Act with the purpose to nullify the tax demand on the basis of retrospective effect.

CAPITAL GAIN wood word on compressed

Now the question is What is Retrospective Tax and why it has been imposed by India

As per technical meaning, it means giving effect to the amendment in the present law before the date on which the changes were brought in, which results in taxing a transaction that took place prior to the date of formation of the law.

Actually, in 2012, to impose a capital gain tax on such companies e.g. Cairn and Vodafone Plc. UK, India introduced retrospective tax. As per this any capital gain arising on the transfer of shares from a foreign entity from 1962, whose assets are located in India would be taxable in India. But after a lot of legal fight between the Government and Vodafone UK, the GOI lost the case and arose many questions among the foreign investors towards India’s tax Laws.

The bill proposed to amend the Income Tax Act,1961 so as to provide that, no tax demand shall be raised in the 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.”

Though there are certain conditions and commitments from the entities, on the basis of which no retrospective tax would be charged by the Government of India on them and below are those:-

  • Undertaking from the entities for withdrawal of pending litigations
  • Undertaking with a commitment that no claim for cost, damages, interest, etc shall be filled
  • The Government would refund the amount which they already took from the entity on retrospective effects basis, without any interest

Effect of Taxation Laws (Amendment) Bill, 2021

After this bill, any demand created before May 28, 2012, will be nullified. Actually, this bill is a win-win for both the companies as well as for the Government. This step would bring a lot of certainty and confidence among the investors. Investors used to think about it multiple times before investing in India by considering the retrospective step, now it is going to end that insecurity and will settle down a lot of litigation and unnecessary disputes.

In 2012, at the time of imposition of retrospective tax lot of countries were not in favor of India’s decision, they considered this provision as a breach of tax treaty. Now this bill will help India in the restoration of worldwide reputation, investor attraction, and revival of the Indian Economy.

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  1. Dev Kumar Kothari says:

    Capital gains on such transactions is bad, 4 retrospective levy and prospective both.
    In view of conditions imposed , it is difficult for taxpayers to accept amendment and settle disputes. Further litigation is likely. Why anyone should forget his efforts so far, and time value of money that remained with government. Why GOI should not compensate taxpayers for damages caused due to wrong legislation and wrong orders. Time has come when governments and its officers should be made liable to pay damages for loss suffered by public due to wrong doing and omission to do proper work on time. Shelter provided in name of Bonafide should not be provided when in fact malafide actions or omissions of officers or government can be observed with more than 1/3 degree of assurance. It is time that governments and its officers must be regarded as a service providers to taxpayers paying substantial amount in direct and indirect tax.

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September 2021