On August 6, 2021, Lok Sabha passed a bill withdrawing retrospective taxation, in relation to indirect transfer cases.
The amendment is applicable for income from transfer of the capital asset situated in India (in consequence of the transfer of a stake in an entity incorporated outside India deriving its substantial value from such capital asset in India) made before 28th day of May, 2012.
Let’s have a brief idea what is retrospective tax and effects of its withdrawal
- Back in 2012, Indian government made a major and most controversial retrospective amendment which brought indirect transfer under the purview of taxation.
- The amendment affected the controversial retrospective tax demand raised against Vodafone for buying Hutchison Telecommunications shares in Hutchison Essar.
- In 2014, the government once again triggered indirect transfer provision to raise tax demand against Cairn energy for an internal corporate restructuring carried out in 2006.
- With this amendment, any demand under retrospective tax law raised before May 28, 2012, shall be nullified on fulfillment 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, interest, etc. shall be filed.
- If the taxpayers paid the taxes against demand raised against under retrospective tax law, then such amount shall be refunded to them, but no interest under section 244A shall be paid on that amount.
- “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 would play an important role in promoting faster economic growth and employment,” the finance minister said.
- With this amendment, it is expected that foreign investments would flow in the country which is a need of the hour as the country looks to reverse the economic depression due to Covid-19 pandemic.