India Withdraws Retrospective Tax – Better Late, Than Never

The Taxation Laws (Amendment) Bill, 2021 ("2021 amendment") passed by the Lok Sabha will undo the retrospective taxation introduced by the Finance Act, 2012 ("2012 amendment"). The 2012 amendment had provided for retrospective taxation of income arising from the sale of interest in an overseas entity that derived, directly or indirectly, its value substantially from assets located in India. An entity was deemed to derive its value "substantially" from assets located in India if the value of such Indian assets exceeded ten crore rupees and represented at least fifty per cent. of the value of all the assets owned by the overseas entity

The 2012 amendment deemed the above clarification to have been in effect from the promulgation of the Income Tax Act on April 1, 1962. This meant that all transactions involving a transfer of shares or interest in foreign entities which derived substantial value from the Indian assets would be subject to capital gains tax in India, and