Centre releases draft rules to drop retrospective tax

The income tax department has issued draft of rules to end retrospective tax demands. The move will further initiate the withdrawal of retrospective tax demands against companies like Cairn Energy and Vodafone PLC, on condition that the companies provide an “irrevocable” undertaking to withdraw all legal cases against the government and also issue an undertaking that they will not pursue any legal action in the future.

The government enacted the Taxation laws  (Amendment) Act 2021 earlier this month. The amendment will end the tax regime that enabled the tax department to levy tax in retrospection that is it could go back to 50 years. Wherever ownership had changed hands overseas but business assets remained in India, the department could slap capital gains levies.

The tax department in its statement mentioned that with the amendment, the demand raised for offshore indirect transfer of Indian assets made before 28th May 2012 (including the validation of demand provided under Section 119 of the Finance Act 2012) shall be nullified on fulfillment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking to the effect that no claim for cost, damages, interest, etc. shall be filed and such other conditions are fulfilled as may be prescribed. In fulfillment of conditions, the amount collected will be refunded without any interest.

A draft of the undertaking is released for comments.

Cairn and Vodafone had challenged the retro tax demand before international arbitration panels which ruled in their favour. Other companies too have got relief from various Indian courts.

The tax rule had levied a cumulative of Rs 1.10 lakh crore of taxes on 17 entities, including Rs 10,247 crore on Cairn and Rs 22,100 crore on Vodafone.