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Taxation Laws (Amendment) Bill, 2021

Context:

The government on introduced the Taxation Laws (Amendment) Bill in the Lok Sabha for doing away with the contentious retrospective tax law of 2012.

Relevance:

GS-III: Indian Economy (Growth and Development of Indian Economy, Fiscal Policy, Taxation), GS-II: Governance (Government Policies and Interventions)

Dimensions of the Article:

  1. Taxation Laws (Amendment) Bill, 2021
  2. Conclusion

Taxation Laws (Amendment) Bill, 2021

  • Taxation Laws (Amendment) Bill, 2021 was introduced in Lok Sabha on August 2021 to amend the Income-tax Act, 1961 and the Finance Act, 2012.
  • The Primary Objective is to nullify the relevant retrospective tax clauses that were introduced in 2012 to bring past indirect transfer of Indian assets under the ambit of taxation.
  • The contentious retrospective tax law of 2012 was used to raise large tax demands on foreign investors like Vodafone and Cairn Energy, and was blamed for vitiating India’s investment climate.
  • The Bill proposes to amend the Income-tax Act, 1961 so as to provide 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 2012 (date on which the Finance Bill, 2012 received the assent of the President).
  • It is further proposed to provide that the demand raised for indirect transfer of Indian assets made before 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, etc., shall be filed.
  • It is also proposed to refund the amount paid in these cases without any interest thereon.
  • The Bill also proposes to amend the Finance Act, 2012 so as to provide that the validation of demand, etc., shall cease to apply on fulfilment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking that no claim for cost, damages, interest, etc., shall be filed.

Conclusion

  • The clarificatory amendments by the Finance Act, 2012 invited criticism from stakeholders mainly with respect to the retrospective effect given to the amendments. It was argued that such retrospective amendments militate against the principle of tax certainty and damage India’s reputation as an attractive investment destination.
  • Even after the retrospective amendments, the pending demand could not be recovered by the Dept. The Income-tax Dept. raised demand in 17 cases. Out of these 17 cases, arbitration under Bilateral Investment Protection Treaty with the United Kingdom and the Netherlands had been invoked in four cases. In two cases, the Arbitration Tribunal ruled in favour of the taxpayer and against the Income Tax Department.
  • These clarificatory retrospective amendments and consequent demand continue to be a sore point with the potential investors. Thus, the Govt. has introduced the Taxation Laws (Amendment) Bill, 2021 in the parliament to propose revocation of the amendments.
  • Now, the country stands at a juncture when quick recovery of the economy after the COVID-19 pandemic is the need of the hour and foreign investment has an essential role in promoting faster economic growth and employment.

-Source: The Hindu

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October 2022
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