Current AffairsGovernance

Retrospective taxation

The government took the first step towards doing away with the contentious retrospective tax law of 2012, which was used to raise large tax demands on foreign investors like Vodafone and Cairn Energy.

  • The Lok Sabha passed the Taxation Laws (Amendment) Bill, 2021 on August 6, 2021.
  • Union Finance Minister Nirmala Sitharaman introduced the Bill to amend the Income-Tax Act, 1961, and the Finance Act, 2012 and withdraw retrospective tax demand provision.
  • The bill proposes to amend IT Act to provide that “no tax demand shall be raised in future on basis of said retrospective amendment for any indirect transfer of Indian assets if transaction before 28th May, 2012”.
  •  The Finance Act 2012 had received the assent of the President on May 28, 2012.
 Key Highlights 

•Taxation Laws (Amendment) Bill, 2021 seeks to withdraw tax demands made under the 2012 retrospective legislation to tax the indirect transfer of Indian assets

•The bill proposes that any 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, interest shall be filed.

•The bill proposes to refund the amount paid in these cases without any interest.

•It also proposes to amend the Finance Act, 2012 to provide that the validation of demand under section 119 of the Finance Act, 2012 shall cease to apply on fulfilment of specified conditions.

•The Bill states that the issue of taxability of gains arising from the transfer of assets located in India through the transfer of shares of a foreign company was a subject matter of protracted litigation.



•The bill is likely to benefit many companies including Vodafone and Cairn Energy who had to pay tax based on the retrospective tax demand provision.

•The amendment will have a direct bearing on the long-running tax disputes with Cairn Energy Plc and Vodafone Group.

•As per the amendment, the centre will withdraw all back tax demands on companies such as Cairn Energy and Vodafone and will refund the money collected to enforce such levies.

•This is crucial as the country stands at a juncture today when quick recovery of the economy after the COVID-19 pandemic is the need of the hour and foreign investment will play a significant role in promoting faster economic growth and employment.

Tags: Current Affairs, Governance

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