The Tax Law (amendment) Law 2021 received the approval of the President on August 13, the Ministry of Justice said in a message that removes the retroactive clause in income tax law.
The bill, which has now become law, amends the Finance Act of 2012 and the Income Tax Act of 1961, eliminating claims on transactions prior to May 28, 2012. Taxation on indirect transfers of Indian assets will be applied prospectively from this date.
The law provides a framework for resolving international arbitrations that the government has lost, including those filed by Vodafone Group Plc and Cairn Energy, plus 15 more resulting from the retroactive tax law.
Cairn Energy, Vodafone and about half a dozen of the companies have reached out to the government to resolve lawsuits or pending legal proceedings on various forums. Some have sought clarity on the reimbursement amounts and the details of the new law.
According to the law, the government will withdraw all retrospective tax claims and will also refund collected taxes and resolve cases if companies withdraw lawsuits filed on all legal forums.
The government has collected rupees 8,089 billion in taxes on four of them, including rupees 7,880 billion from Cairn, which are being refunded. No interest is paid on the refunded taxes.
The government will now put rules and procedures in place for businesses to resolve their disputes.
Prime Minister Narendra Modi said the decision to abolish retrospective taxation sent a clear message to investors that India is opening its doors to new opportunities, stressing the government’s willingness to deliver on its promises.
India’s decision shows commitment and political consistency and gives all investors a clear message that it will deliver on its commitments, Modi said.
Treasury Secretary Nirmala Sitharaman said during a discussion in parliament earlier this week that the move to abolish retroactive application of the law could not come sooner as Jaitley said the government would wait for the two ongoing cases to reach their logical conclusion. That happened in September 2020 (Vodafone) in one and December 2020 (Cairn) in the second.
The finance minister said that these cases had been thoroughly investigated and as the budget meeting had to be shortened, the government presented the bill at the earliest opportunity.