THE TAXATION LAWS (AMENDMENT) BILL, 2021 – AN OVERVIEW

INTRODUCTION

Recently, the Taxation Laws (Amendment) Bill, 2021 was passed by the Parliament by a voice vote. The Finance Act, 2012 had made such offshore transactions, which involved Indian assets, taxable in India. This gave rise to retrospective taxation as even those transactions which occurred before the law was enacted were taxable. This led to several litigation suits being filed in Indian as well as foreign courts. Retrospective taxation means passing a law for taxing such transactions and gains which occurred prior to the law coming in force. The Finance Act, 2012 was passed to retrospectively tax such indirect transfers of Indian – origin assets which occurred after 1962. 

The Finance Act, 2012 was passed in the backdrop of a Supreme Court in which the Court had ruled in favor of Vodafone and had held that gains involving indirect transfers of Indian assets were not taxable under the Indian tax laws. The purpose of the Finance Act, 2012 was to overturn this judgment. However, it gave rise to several prolonged litigations as several companies came under the ambit of this amendment. The retrospective taxation was met with immense criticism as it led to tax uncertainty and imposed a tax on companies that they could not have foreseen. 

The Taxation Laws (Amendment) Bill, 2021 seeks to withdraw all such tax demands which were made in accordance with the provision of retrospective taxation.  The Bill makes an amendment to the Income Tax Act, 1961 and removes the controversial policy of retrospective taxation.

PROVISIONS OF THE BILL

This Bill clearly states that no transaction involving the indirect transfer of Indian assets shall be taxable if the transaction took place prior to 28th May 2012. 28th May was the date on which the Finance Act, 2012 came into force after receiving the then President of India’s assent.

Furthermore, the Bill provides for the nullification of any tax raised for the indirect transfer involving Indian assets prior to May 2012 provided that certain conditions such as withdrawing any outstanding case and undertaking that no claim for damages will be filed, etc were fulfilled. After the fulfillment of such conditions, the validation of demand, etc., provided under Section 119 of the Finance Act, 2012 will cease to apply. The Bill also stipulates that any amount paid by the Companies pursuing outstanding litigation would be refunded without any interest. As per reports, a total sum of rupees 8100 crores had been collected through retrospective taxation.

CONCLUSION

The policy of retrospective transactions has been criticized for leading to tax uncertainty. The passing of this Bill is certainly an investment-friendly step. Removal of retrospective tax had for long been the demand of the foreign investors. The Taxation Laws (Amendment) Bill, 2021 changes the retrospective effect of the Finance Act, 2012 and makes it prospective in nature. Hence, transfers involving Indian assets which took place after the coming into force of the Finance Act, 2012 will only be taxable. The passing of this Bill brings clarity to the tax laws. It will also have a positive impact on the ease of doing business in India and will lead to long-term benefits.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

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We are also running a series Inspirational Women from January 2021 to March 31,2021, featuring around 1000 stories about Indian Women, who changed the world. #choosetochallenge

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