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Explained: Government abolishment of Retrospective Tax

First, let us know what is "Retrospective Tax":
In terms of taxation, retrospective tax means giving effect to the amendment in the present law before the date on which the changes were brought in. It burdens an exchange that occurred before the law was outlined. It is often termed "Tax Terrorism" by many economists.

Date of Abolishment: 5th August 2021.
The Modi government moved to forever cover the dubious review charge revisions made in 2012 that had antagonistically affected India's picture as a financial backer amicable nation and Ease of working together rankings. The public authority proposed a bill in Lok Sabha that tries to correct the "Income Tax Act, 1961" to get rid of the review charge revisions in the IT laws

Need for Abolishment:
When passed, this bill is likely to effectively end India's dispute with Vodafone PLC and Cairn Energy and 15 other major disputes, where the IT department had raised tax demand based on these retrospective changes to tax laws.

Significance of this Bill:
Was introduced at the time when the government lost both Vodafone and Cairn energy in international Arbitration, where Cairn energy has been aggressively moving to enforce its $1.7 billion award by confiscating Indian assets overseas.

Objectives as per Finance Ministry:
They called attention to the that the review tax collection keeps on being a "sore point" for financial backers. In the past few years, major reforms have been initiated in the financial and infrastructure sector, creating the environment for FDI in India. However, this retrospective amendment and consequent demand created in a few cases continue to be a sore point with potential investors. Today the country needs a quick recovery from the COVID-19 hit and is in dire need of FDI and FII.

Let's know the reason for the Retrospective Tax Bill introduction in 2012:
In 2012, then FM Pranab Mukherjee retrospectively changed the Income Tax Act to tax transactions involving the sale/transfer of shares that take place outside India but where underlying assets are located in India including deals executed.

**The amendment was introduced to nullify an adverse Supreme Court ruling of the same year where the apex court had ruled against the Income Tax Department's move to levy capital gains on an overseas share sale transaction involving Vodafone PLC and Hutch PLC in an $11 billion deal.

It recommends that no expense request will be brought up in the future under this review correction if the exchanges were embraced before the Finance Act of 2012 came into effect on 28th May 2012.

Further, for cases where the tax demand has been made for transactions completed before 28th May 2012, the demand will be "Nullified on fulfilment of special conditions subjected". However, won't exempt transactions involving the indirect transfer of shares undertaken after 28th May 2012 to date from the provision of the IT Act.

I feel the abolishment of the Bill is needed of the hour to further prevent the catalytic effects of losing interest in investing in India. Moreover, it leads to more increase in economic freedom of the country eventually increasing the GDP and GSDP of the state. Amid the US-China trade war this bill helps India grow as a potential destination for investment by eliminating roadblocks in investment procedures.

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