Govt hopes to start on clean slate after retro tax changes

NEW DELHI: The government is hoping that the amendments to the retrospective taxation provision - which are aimed at ensuring prospective application of the provisions - will end a long-pending concern and help companies and the Centre make a fresh start once both parties end litigation.

Top government sources told TOI that the amendments moved by finance minister Nirmala Sitharaman on Thursday has sought to link the end of action by the tax authorities to withdrawal of all cases and doing away with any demand for interest on refunds to ensure that they can begin on a clean slate.

"We are dealing with public money so we have also sought Parliamentary approval to refund the money as we want to make the amendment truly prospective. That is why we have suggested that there should be an undertaking to withdraw all litigations and agreements to ensure that only the principal is paid," a senior finance ministry official told TOI.


Although many see the amendments as an outcome of the two adverse rulings by international tribunals, the government decision came as a surprise to most analysts.

Government sources said Prime Minister Narendra Modi wanted the legal process to play out and was clear that the issue needed to be addressed. In the past, former finance minister Arun Jaitley had described the retrospective amendments as erroneous.

In fact, in 2014, while presenting his first Budget, Jaitley had assured investors that the Modi government "will not ordinarily bring about any change retrospectively, which creates a fresh liability", while pointing out that the cases would "reach their logical conclusion".

The sources argued that with the arbitration awards the logical conclusion had been reached, which had prompted the government to move the amendments. "Ideally, the Congress should have corrected it but this government has to do it. This is a major decision of the PM," a top government functionary said.

Tax experts have welcomed the move, saying it will provide much-needed relief and end litigation. "This clearly demonstrates the government's intent to shore-up India's positive investor-friendly image, continue the momentum towards creating India as an attractive investment destination, thereby promoting faster economic growth and employment," said Sanjay Tolia, a partner at consulting firm PW & Co.