Government Of India Amends Income Tax Act, Retro Tax Demands Nullified

The Union government today proposed to amend the Income Tax Act to end controversial retrospective tax demand.

The move came after tax disputes with Cairn energy and Vodafone Group last year. Finance minister Nirmala Sitharaman introduced The Taxation Laws (Amendment) Bill, 2021 in the Lok Sabha which seeks to withdraw the controversial tax demands made on indirect transfer of Indian assets prior to May 28, 2012.

"Government of India has decided not to raise any tax demand arising from indirect transfer of assets in India prior to May 28, 2012 when Finance Bill 2012 received presidential assent. Any existing demands are also proposed to be nullified subject to withdrawal of pending litigation and the taxpayer agreeing to forego interest, costs and damages. Refunds too shall be handed out without interest. This is indeed a very pragmatic step by the Government and should help it contain the widespread litigation in cases similar to Vodafone and Cairn. A worthy battle to lose," Kumarmanglam Vijay, Partner, J Sagar Associates said.

Last year, Cairn and Vodafone filed lawsuits in international courts against the retrospective tax, both of which India lost. The bill provides for the withdrawal of tax demand made on "indirect transfer of Indian assets if the transaction was undertaken before May 28, 2012 (i.e. the day the retrospective tax legislation came into being)."