Lok Sabha passes Taxation Laws (Amendment) Bill 2021 to end retro tax

The Lok Sabha on Friday passed the Taxation Laws (Amendment) Bill 2021. This bill proposes amendments to the Income Tax Act, 1961 and does away with the contentious practice of retrospective tax.

The bill states 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.". This is the date on which the Finance Bill, 2012 had received the assent of the President of India

Speaking in the Lok Sabha on the Taxation Laws (Amendment) Bill 2021, Finance Minister Nirmala Sitharaman said, "Keeping up the commitment of BJP that we don't believe in the retrospective application of tax, we are fulfilling that word by bringing this amendment".

The Taxation Laws (Amendment) Bill 2021 was introduced after India lost retrospective tax demand cases against Cairn Energy Plc. and Vodafone. The Centre had challenged the verdict in both these cases, however, the continued existence of retrospective taxation had raised many questions within the country. The passing of the bill is expected to have a huge impact on these cases.

The bill also states that any demand raised for "indirect transfer of Indian assets made before May 28, 2012, shall be nullified on fulfilment of specific 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."

The Taxation Laws (Amendment) Bill 2021 proposes to refund the amount paid by firms facing trial in retrospective tax demand cases without interest thereon. Earlier, Finance Secretary T V Somanathan had said a total of Rs 8,100 crore was collected using the retrospective tax legislation. Of this, Rs 7,900 crore was from Cairn Energy alone. This money will be repaid.

The bill states that the demand had been raised in 17 cases and the retro tax was criticised for being against the principle of tax certainty and damaged India's reputation as an attractive destination. It was a sore point for potential investors.

Also Read: Rajya Sabha clears Deposit Insurance & Credit Guarantee Corporation (Amendment) Bill

Also Read: Relief for Vodafone, Cairn? Centre tables bill to withdraw 2012 retrospective tax amendments