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What does scrapping of retrospective taxation mean for Indian economy and markets?

Experts believe that it is a welcome move that will potentially cheer the global investor community


‘Retrospective Taxation’ is back in the news, although this time it is for the good. Finance Minister Nirmala Sitharaman announced this week that the government is ending a controversial retrospective tax law.

Finance Minister Nirmala Sitharaman had described the legislation as “bad in law and bad for the investors’ sentiments” and said there were 17 litigations due to the retrospective tax law and even the Supreme Court had said in 2012 that the tax could not be levied for indirect transfer of shares of foreign companies.

“The Bill has been brought as a clarification,” she said in the parliament.

The Lok Sabha on August 6, 2021, passed the bill to end all retrospective taxation imposed on indirect transfer of Indian assets.

What is ‘Retrospective Tax’?

‘Retrospective’ is ‘looking backward’. In terms of taxation, retrospective tax means it taxes a transaction that took place prior to the law being framed.

Why has the government scrapped it?

 India had suffered a series of setbacks in international arbitration on this issue. As many as 17 entities stand to benefit from the proposed tax amendment on whom tax demand of Rs 1.1 trillion was made.

What does revoking of the taxation mean for India?

Experts believe that it is a welcome move that will potentially cheer the global investor community. It recognises the importance of certainty in tax laws, which is key in ensuring confidence in India as an attractive investment destination.

Published: August 8, 2021, 13:29 IST

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