On Thursday, the finance ministry introduced Taxation Laws (Amendment) Bill, 2021 in Lok Sabha to do away with the contentious retrospective tax demand provisions. The retrospective tax provision was introduced by the UPA Government under the Finance Act 2012, by Pranab Mukherjee, then Finance Minister.
The purpose of the tax was to gain capital gains made by companies like Vodafone Group of UK and Cairn Energy retrospectively.
This move has also set out India’s stand as a nation on the principle of taxation. Though the Centre stressed the need to establish its sovereign right to tax, the scrapping of the retrospective law clarifies to investors by removing a major source of ambiguity on taxation laws.
At that time the NDA as the opposition termed the use of powers as “tax terrorism.” The issue was dragged for almost seven years, then Finance Minister and NDA’s key strategist Arun Jaitley argued against the principle of retrospective taxation on numerous occasions.
At that time Jaitley said, “…consequent upon certain retrospective amendments to the Income Tax Act 1961, undertaken through the Finance Act 2012, a few cases have come up in various courts and other legal fora. These cases are at different stages of pendency and will naturally reach their logical conclusion.”
Here is your 5-point guide to a big story:
1.) Retrospective tax could correct the situation by charging tax under the existing policy.
2.) Retrospective tax would make adjustments when policies in the past and the present are so vastly different than the tax paid before under the old policy could be said to have been less.
3.) Most controversial retrospective tax amendment is the 2012 version, which said tax is payable on indirect transfer of Indian assets before May 2012.
4.) Prudent financial management may get disrupted when retrospective tax is charged since taxpayers would be paying an additional amount.
5.) Retrospective tax faces resistance because taxpayers would have paid under the earlier regime by complying with the rules at the time and taking into account their entire budgeting ecosystem.