Bidding Adieu to Retro Tax: Lok Sabha comes through.


Recently the Indian Government finally moved to bury the ghost of retrospective tax by proposing a bill to amend the Income Tax Act.

The Taxation Laws (Amendment) Bill during the Lok Sabha session on Thursday, 5th August 2021, by our Finance Minister, Nirmala Sitharaman.


The nullification of taxes on indirect transfers will restore the faith of the international business community. In the statement, Finance Ministry highlights that the bill proposes to amend the Income-tax Act, 1961, to ensure that no tax demand shall be raised in future.

These demands were based on the said retrospective amendment for any indirect transfer of Indian assets if the transaction has been undertaken before 28th May 2021 (the date on which the Finance Bill, 2021 received the permission of the President).

This amendment comes at the right time as it would serve as a much-needed boost for the economy after the COVID-19 pandemic.

Needlessly to say, in the past few years, significant reforms have been initiated in the financial and infrastructural sector to birth a positive environment for investments in the country.

As a need of the hour, foreign investment plays a vital role in promoting faster economic growth and employment.

The legislation will open up a gateway for hassle-free investments as this legislation will get rid of all excessive legislation and promote honest communications.


Broadly, the bill impacts retrospective tax cases of at least two giant corporations- Cairn Energy Plc and Vodafone Group of U.K. in the past, these firms have won international arbitrations against the levy of retrospective taxes onto them.

This takes place amid India’s Cian Energy arbitration case wherein the British oil and gas energy is seeking to recover USD 1.2 billion from New Delhi.

Till now, the Government hasn’t received any formal proposals to resolve this within the prevailing legal framework.

Cairn Energy issued a statement saying that they are monitoring the situation and will provide a further update in due course.

Surprisingly, out of the total INR 8,100 crore collected using retrospective tax legislation, INR 7.900 crore was from Cairn Energy alone.

Since 2014, the Government does not exercise support to retrospective taxation, and right now, India needs enormous investments. These retro tax disputes date back to pre-2014 and need to be solved at the earliest.

Quite simply, for the Indian Government, it has been a balancing effort between the exercise of the Right to tax by the Indian Union and relief to all those against whom taxes were due.


Tarun Bajaj, Revenue Secretary, mentioned that this bold step assures the investor community about predictability in the tax regime.

It is not a question of INR 8,000 crore but the intent of the Government that it does not believe in retro taxation.

Eminent people from the investor and business community have come forward to speak in favour of this amendment Ved Jain, former President, ICAI, said that this amendment would undoubtedly settle arbitration.

Neeru Ahuja, Partner, Deloitte India, expressed that the bill is a much-awaited welcome step from the Government.

She further added that this amendment serves as a correction to the wrong done many years ago.

Disputes that are repeated to indirect transfers will be settled calmly, and excessive litigations will go away with the introduction of this bill. All in all, it’s a win-win situation for both parties involved.

Another tax partner, Amit Maheshwari at AKM Global, reviews this legislation as a pragmatic development. The amendment will undoubtedly help restore India’s reputation on a worldwide scale.

Rashi Malik
Rashi Malik
A recent Political Science graduate from Delhi university, Rashi is a dynamic and inquisitive content writer. She aspires to enter the world of Corporate communications and understands how important it is to convey ideas effectively through writing. Having converted herself into a polyglot, she's now discovered a niche in writing. Don't be surprised if she catches the world of global affairs and Diplomacy at 2 in the morning because she is a hardcore MUNer. She's more excited than ever to inspire the youth to write and speak up because we are the future decision-makers.


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