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The Taxation Laws (Amendment) Bill 2021

Socio Legal Corp

Written By – Komal Sharma, Policy Associate

The Taxation Laws (Amendment) Bill 2021 which was recently introduced in the parliament seeks to nullify the effect of the amendment brought by Finance Act 2012. The recent amendment (2021) is a step against the retrospective effect on the indirect transfer of the Indian assets which was a result of the 2012 amendment in the Finance Act 2012.

The Finance Law Amendment 2012 was a reply to one of the Supreme Court verdicts in the Vodaphone case that held that the existing Income Tax Act 1961 has no clause on imposing tax on the gains arising from the indirect transfer of the Indian assets. So as to overturn the Supreme Court Verdict certain provisions were amended by the Amendment Act 2012 in the Income Tax Act 1961, which simplified that the gains arising from sale of share of a foreign company is taxable in India if such share, directly or indirectly, derives its value significantly from the assets located in India and if the transaction was undertaken before 28th May 2012.

The present Taxation Laws (Amendment) Bill suggests to amend the Income Tax Act 1961 to turn the retrospective nature of the 2012 amendment in the prospective one, by proposing that-

  • no tax demand to be raised in future for transactions made before 28th May 2012.
  • And by also suggesting that demands that has already been raised for transactions made before 28th May 2012 shall be nullified to the extent it relates to the said income on fulfilment of specified conditions (such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking to the effect that no claim for cost, damages, interest, etc., shall be filed.)
  • Further, it suggests that where any amount has been collected as per the retrospective amendment in Finance Act, 2012 or any amount becomes refundable after nullifying the order already passed; such amount shall be refunded without any interest under Section 244A on fulfilment of some specified conditions.
  • The Bill also proposes to amends section 119 of the Finance Act in a way that the validation of demand, etc., mentioned under the very section be ceased to apply and refunds be made on fulfilment of certain specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking that no claim for cost, damages.

These are some of the changes that would be a result of the present amendment bill in the Taxation Law and as the bill has already been passed in Lok Sabha, on becoming the act it is likely to benefit many larger companies on a long term, may boost the foreign investment and may also help in promoting faster economic growth and investment.

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