The Central Government has notified the Taxation Law Amendments Act, 2021 to Repeal Retrospective Tax which sought to withdraw the contentious retrospective tax brought by Finance Act 2012.
“The Act amendedthe Income Tax Act, 1961 so as to provide that no tax demand shall be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before 28th May 2012.
The Taxation Laws (Amendment) Bill, 2021 was introduced in Lok Sabha by the Minister of Finance, Ms. Nirmala Sitharaman, on August 5, 2021. The Bill amends the Income Tax Act, 1961 (IT Act) and the Finance Act, 2012. The 2012 Act had amended the IT Act to impose tax liability on the income earned from the sale of shares of a foreign company on a retrospective basis (i.e., also applicable to the transactions done before May 28, 2012). The Bill proposes to nullify this retrospective basis for taxation.
Key features of the Bill include:
Tax on income earned from the sale of shares outside India: Under the Income Tax Act, non-residents are required to pay tax on the income accruing through or arising from any business connection, property, asset, or source of income situated in India. The amendments made by the 2012 Act clarified that if a company is registered or incorporated outside India, its shares will be deemed to be or have always been situated in India if they derive their value substantially from the assets located in India. As a result, the persons who sold such shares of foreign companies before the enactment of the Act (i.e., May 28, 2012) also became liable to pay tax on the income earned from such sale.
The Act proposes to nullify this tax liability imposed on such persons provided they fulfil certain conditions.These conditions are:
(i) if the person has filed an appeal or petition in this regard, it must be withdrawn or the person must submit an undertaking to withdraw it,
(ii) if the person has initiated or given notice for any arbitration, conciliation, or mediation proceedings in this regard, the notices or claims under such proceedings must be withdrawn or the person must submit an undertaking to withdraw them,
(iii) the person must submit an undertaking to waive the right to seek or pursue any remedy or claim in this regard, which may otherwise be available under any law in force or any bilateral agreement, and
(iv) other conditions, as may be prescribed.
The Act provides that if a concerned person fulfils the above conditions, all assessment or reassessment orders issued in relation to such tax liability will be deemed to have never been issued. Further, if a person becomes eligible for refund after fulfilling these conditions, the amount will be refunded to him, without any interest.
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