Nullification of Retrospective Taxation

Context

Finance Ministery introduced the Taxation Laws (Amendment) Bill in LokSabha to the nullification of the retrospective taxation clause.

What is Retrospective taxation?

• A retrospective tax is imposed on a transaction or deal that had been conducted in the past.
• It was introduced in 2012 by an amendment to the Finance Act, which enabled imposition of the retrospective tax on the deals that were executed after 1962 and involves transfer of shares in a foreign entity which had assets in India.

What are the proposed changes?

• The Bill proposes to do away with the retrospective taxation on the sale of assets executed before May 2012 in India by the foreign entities.
• The companies that will benefit from the amendment must withdraw all legal cases against the government and forfeit interest, costs, and any damages.

How are global investors likely to react?

• The government has shown the intent for not claiming the tax retrospectively and to demonstrated willingness to undo a measure that was seen to hurt the inflow of foreign investment.