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Current Affairs

Retrospective tax policy

Date: 07 August 2021 Tags: Miscellaneous


The Union government finally withdrew the Income-tax Act and Finance Act, 2012 by introducing an amendment bill.



The IT Act and finance act 2012 was introduced by then Finance Minister Pranab Mukherjee for retrospective taxing.



  • The withdrawal of the act was always on the cards after an adverse ruling in international tribunal that had mandated India to pay back dues to Cairns energy.

  • The move is also seen as a signal to global investors that India is adopting course correction for its blunders and is also ready to circumspect.

  • The removal is a move to take away ambiguity on tax laws which was feared by foreign companies and investors. It will also clear its stand on taxation principle.


The law

  • It was one of the most controversial and consequential tax laws in India that applied retrospectively to transactions.

  • The reason for its introduction was the Supreme Court ruling that had refused to allow government tax Vodafone- Hutchison deal.

  • The government had earlier demanded taxes from the deal but was denied by the company as well as judiciary due to absence of provision, which was later added.


The reversal in stand

  • India has suffered adverse effects of this law on international platform. It lost arbitration case against Cairns energy and was asked to pay back the amount collected.

  • In addition, its reputation as a business friendly economy took a hit when there was no move to reverse the retrospective law.