The Tax Law (Amending Law) 2021 was passed in Lok Sabha on Friday without debate amid opposition protests and slogans. The bill was put up for discussion in the house on Thursday by Union Finance Minister Nirmala Sitharaman. The law now abolishes the controversial post-tax after more than nine years since its introduction. The retro-tax introduced under the Finance Act 2012 resulted in a tax on capital gains from companies such as Cairn Energy Plc and Vodafone Group of UK.
Tax Laws (Amendment) Bill 2021 passed in Lok Sabha amid opposition protests
On Friday, Nirmala Sitharaman said while she was putting the bill for review and approval, “The issue of collecting income tax on income from issuing Indian assets by transferring shares of a foreign company has been the subject of protracted litigation. In 2012, the Supreme Court ruled that such income is not taxable under the provisions of the Income Tax Act. Such income is not taxable under the provisions of the Income Tax Act, ”reported the ANI news agency.
Sitharaman shared the highlights of the Taxation Law (Amendment) Bill 2021, adding, “As a result, the Finance Act of 2012 retrospectively amended the Income Tax Act of 1961 to clarify that such income is taxable. The Finance Act 2012 also provided that the claim made on this income would be valid even if the said claim was dismissed by the courts. So it happened that this post-tax was introduced as a clarifying change. However, there were some disagreements on this measure and although we were against it, we had clearly raised the objection that this was illegal and also bad for investors. “
“However, for the cases prior to 2012 for which it was applied retrospectively, there are 17 such cases. Of these, two went to court and were suspended. The claims could not be pursued any further, Treasury Secretary Arun Jaitley, we fundamentally do not believe in that. However, we were unable to respond to it in 2014 either because there were two cases, ”said Sitharaman in the House of Commons.
Finance Minister Nirmala Sitharaman speaks in Lok Sabha about the Tax Law (Amendment) Bill 2021
We are upholding BJP’s pledge that we will not believe in the retrospective application of taxes and we are fulfilling that word with this change, says FM Sitharaman pic.twitter.com/SdAQYIVp8W
– ANI (@ANI) August 6, 2021
Appreciating the passage of the law in the House of Commons, the RBI Governor said, “This has been a long pending matter. The government made a timely decision. “
This has been a long pending affair. The government made a decision in good time. It’s a welcome move: RBI Governor Shaktikanta Das on the Taxation Laws (Amendment) Bill 2021
The law was passed in Lok Sabha today. pic.twitter.com/G3yNf9wmK9
– ANI (@ANI) August 6, 2021
As a result, the British oil and gas company Cairn Energy won an arbitration against the additional tax in a French court. Cairn is now trying to reclaim $ 1.2 billion from India. On March 22, 2021, the Indian government appealed the order to the Hague Court of Appeal.
What is a retroactive tax? What does its removal mean?
On May 28, 2012, the Finance Act 2012 was introduced, which legally underpins the country’s subsequent taxation. The retroactive tax law introduced a tax on corporate capital gains, which had an impact on UK companies such as Cairn Energy Plc and the Vodafone Group. The bill was announced by the late Pranab Mukherjee during his tenure as finance minister and approved by then-President Pratibha Patil. Now the current government plans to reverse this and abolish the proceedings pending in Indian courts. Many investors have already supported it as it supports the requests of foreign investors.
Sitharaman explained in the explanation of the bill that the effect of the before 28, that no claim for costs, damages, interest etc. is asserted.
Center wanted to abolish retroactive tax law since 2014
The government led by Narendra Modi has also been asked to lift the retroactive tax. After taking power in 2014, former Treasury Secretary Arun Jaitley assured stakeholders that the law would only track pending evaluations. No new cases were filed on the matter. FM Sitharaman had later hinted at the change during a “major economic reform”. “However, the post-taxation and resulting demand that arises in some cases continues to be a sore point with potential investors,” she said.
Sitaraman told Lok Sabha on Friday: “Treasury Secretary Arun Jaitley made a clear commitment here in the House of Representatives in 2014 that we do not believe in applying the law retrospectively and we will certainly set up a high-level committee to look into all of them these cases, and I am happy to say that the High Level Committee has looked at this matter between 2014 and today and we have not had a single claim based on the 2012 amendment. “
“The country is at a point today where rapid economic recovery from the COVID-19 pandemic is the order of the day and foreign investment plays an important role in promoting faster economic growth and employment,” the Finance Minister said added. The centre’s latest move promises companies like Vodafone Idea and Cairn that their demand for retroactive tax deduction will be heard.