Scrapping Retrospective Tax a Welcome Move, But Why Did It Come So Late?

The retrospective tax amendment of 2012 had made indirect transfer of Indian assets prior to 2012 taxable.

In a big move to end "tax terror", Finance Minister Nirmala Sitharaman introduced the Taxation Laws Amendment Bill in the Lok Sabha, to scrap the draconian retrospective tax amendment of 2012.

(Photo: The Quint)

In a big move to end "tax terror", Finance Minister Nirmala Sitharaman introduced the Taxation Laws Amendment Bill in the Lok Sabha to scrap the draconian retrospective tax amendment of 2012 that had made indirect transfer of Indian assets prior to 2012 taxable.

The government said, "The Bill proposes to amend the Income Tax Act, 1961, to provide that no tax demand shall be raised in future on the basis of the said retrospective amendment." The Bill further proposes to refund the principal amount paid in these cases, without any interest, provided that the companies withdraw pending litigations against the government and drop their claims.

Nine years ago, the UPA regime had implemented this policy, allowing hefty capital gains to be slapped in cases where a change in ownership occurred overseas while business assets were in India.

Since the policy was implemented in the UPA regime nine years ago, the government demanded thousands of crores in retrospective tax on prior transactions in 17 cases, among them telecom company Vodafone and gas company Cairn Energy. Some of the tax demands have also run into long-drawn legal battles, which miffed foreign investors.

While this move is being touted to be an effort to rectify older mistakes, and may even provide some respite to Vodafone, which is on its last legs, there's also the question of why this reversal came so late from the government.

Despite former Finance Minister Arun Jaitley staunchly criticizing what he called the UPA government's "tax terrorism", what has induced the Modi government to reverse it seven years after coming to power? And, why was the retrospective tax law introduced by the UPA?

In this episode, The Quint's Editor in Chief Raghav Bahl and Dinesh Kanabar, an entrepreneur and international tax expert, breakdown what the reversal of the retrospective tax means. Tune in!