Centre moves to redact retrospective tax law

The government of India took the first step towards doing away with the contentious retrospective tax law of 2012, which was used to raise large tax demands on foreign investors like Vodafone and Cairn Energy, and blamed for vitiating India’s investment climate.

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Union Finance and Corporate Affairs Minister introduced the Taxation Laws (Amendment) Bill in the Lok Sabha on Thursday to nullify the relevant retrospective tax clauses that were introduced in 2012 to bring past indirect transfer of Indian assets under the ambit of taxation.

A retrospective tax is one that is charged for transactions in the long past. It can be a new or additional charge on transactions done in the past.

The Government of India recently lost an international arbitration case to energy giant Cairn Plc over the retrospective levy of taxes, and has been asked to pay damages worth $1.2 billion to the UK firm.