Rules on retro tax to be framed soon, says finance minister Nirmala Sitharaman

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Finance Minister Nirmala Sitharaman on Monday said the rules that will lead to the scrapping of the retrospective tax demands made on companies such as Cairn Energy Plc and Vodafone Plc will be framed soon.

Parliament earlier this month passed a bill to scrap a tax rule that gave the tax department power to go 50 years back and slap capital gains levies wherever ownership had changed hands overseas but business assets were in India. The 2012 legislation was used to levy a cumulative of Rs 1.10 lakh crore of tax on 17 entities, including UK telecom giant Vodafone.

The bill provides for the government to refund the retro tax to companies provided all legal challenges are withdrawn.

Now the rules for the same have to be framed, Sitharaman said. “Rules will have to be framed… rules will be famed soon.” The government has to refund about Rs 8,100 crore that it had collected using the retro tax law. The bulk of this — Rs 7,900 crore is to Cairn Energy alone.

While in other cases, it did not take punitive measures to recover the tax demand, the income tax department sold Cairn’s near 10 per cent shareholding in its erstwhile Indian subsidiary and also seized its dividends totalling Rs 1,140 crore and stopped tax refunds of Rs 1,590 crore.

Cairn challenged the tax demand before an international arbitration tribunal, which in December last year overturned the same and ordered the government to refund the money collected.

Vodafone too had gone a favourable arbitration award against levy of Rs 22,100 crore tax.

In both cases, the government appealed against the awards – in Singapore court in the case of Vodafone and in The Hague in the case of Cairn. Singapore was the seat of Vodafone arbitration and the Hague was the same in the case of Cairn.