In a major development providing significant relief to the foreign investors, the Taxation Laws (Amendment) Act, 2021 (“Amendment Act”) was enacted on 13 August 2021, amending the contentious retrospective tax provisions under section 9 of the Income Tax Act, 1961 (“IT Act”) and section 119 of the Finance Act, 2012 (“Finance Act”), which had imposed tax liability on gains accruing or arising from the indirect transfer of assets located in India through the transfer of share(s) or interest in a foreign company or entity (“Indirect Transfers”).
The Amendment Act is a significant step in creating a better investor-friendly business environment and further improving the ease of doing business in India.
In 2012, the Supreme Court of India had ruled that the gains arising from Indirect Transfers are not taxable under the IT Act. Subsequently, the Indian Parliament amended the relevant provisions of the IT Act and the Finance Act to permit retrospective taxation of such Indirect Transfers, effectively invalidating the Supreme Court’s judgment.
Consequently, tax demands were raised in several cases resulting in long drawn disputes. These amendments were criticized for contravening principles of tax certainty and bilateral investment treaties.
Key highlights of the Amendment Act
- No tax demand shall be raised on any Indirect Transfers made prior to 28 May 2012;
- Any prior assessments or orders, imposing liability on assessees in relation to such Indirect Transfers made prior to 28 May 2012, shall be void;
- Payments made towards tax claims imposed pursuant to such Indirect Transfers made prior to 28 May 2012 would be refunded without interest, upon satisfaction of certain prescribed conditions, such as:
- withdrawing or furnishing an undertaking to withdraw any claim, appeal or writ; and
- furnishing an undertaking, in the prescribed form, waiving the right to raise any claim or pursue any remedy available under any statute or agreements.
The Amendment Act may be accessed at: