Govt buries Retrospective Tax

Finance Minister, Nirmala Sitharaman, introduced a Bill in Parliament to nullify the provisions of Income Tax Act. This bill has put an end to contentious retrospective tax law which has hit the confidence of foreign investors like Vodafone and Cairn.

Highlights

• Government also proposed to refund amount paid in litigation by companies without any interest.
• According to Finance Secretary T V Somanathan, total amount involved in all cases is about Rs 8,100 crore. About Rs 7,900 crore is related to Cairn dispute.

About the Bill

Bill will withdraw the retrospective amendments in the Income Tax Act of 1961 that raised demands on Vodafone, Cairn and some others. This bill seeks to attract foreign investments. As per the bill, no tax demand would be raised in future based on the retrospective amendment for any indirect transfer of Indian assets, in case transaction was undertaken before May 28, 2012.

Vodafone case

Vodafone case dates back to telco acquiring Indian assets of Hutchison Essar in 2007. There was a demand of Rs 22,100 crore. Government had filed an appeal against verdict in Singapore. India had also lost a case against taxing Cairn Energy Plc and Cairn UK holdings ltd in international arbitral tribunal at The Hague in 2020 on alleged capital gains that company made in 2006. Tribunal had asked India to pay Cairn an amount of $1232.8 million plus interest as well as $22.38 million towards arbitration and legal costs.

Retrospective Taxation

Retrospective Taxation allows any country to pass a rule on taxing certain products, items or services. It charges companies from time behind the date on which any law is passed. This route is used by countries to correct any anomalies in their taxation policies. Countries like USA, UK, Netherlands, Belgium, Canada, Italy and Australia and have retrospectively taxed companies.

Month: Current Affairs - August, 2021