On 13 August 2021, the Taxation Laws (Amendment) Act 2021 (Act)
received the Presidential assent, withdrawing retrospective effect
of the much-controverted indirect transfer tax.
Background
Indirect transfer tax (colloquially referred to as
‘Vodafone Tax') was introduced in the Indian income tax
law in 2012 to treat capital gains earned in an offshore transfer
of shares (or interest) in a foreign entity as India sourced, and
hence, taxable in India, if such shares (or interest) derive
‘substantial value' from Indian assets (2012
Amendment). The 2012 Amendment was introduced in response to, and
to nullify the effect of the Supreme Court verdict in the case of
Vodafone International Holdings B.V v Union of India ([2012] 1
S.C.R. 573). The apex court had ruled that in absence of a
‘look-through' tax provision, gains arising on transfer
of shares of a foreign company, being an asset situated outside
India, are not taxable in India. The most controversial part of
