The government’s budgetary decision to impose taxes on overseas deals which involve underlying Indian assets is now inviting the expected global criticism. In the budget, the Finance Minister announced amendment to the Income Tax Act, enabling the government to tax overseas transactions of Indian assets.

            The most important feature of the amendment is its retrospective effect. Because of the retrospective effect, all such transactions from 1962 onwards will be reassessed and made taxable with one legislative touch. Tax practitioners warn that besides, causing chaos the amendment may create an impression in the minds of the foreign investors that economic laws can be revised in the country at any time.

            This amendment means Vodafone, which secured a favorable verdict from the Supreme Court on the Hutch deal just few months ago, should pay around Rs 11000 crores as taxes to the government.

            The retrospective aspect of the amended law many analysts interpret- is aimed at Vodafone. Of course, the British company now has no other option but to pay taxes. The legislation is now more powerful with the amendment and there are no loopholes. Unless the telecom major gets an unlikely win against the amendment in the Supreme Court, it should pay taxes.

            Leading the foreign pressure against the amendment is Mr George Osborne, the UK Finance Minister. In the just concluded talk with Sri Pranab Mukherjee, the UK Chancellor of Exchequer (the Finance Minister) complained that Vodafone was treated unfairly.

            Many other foreign investment groups also have criticized the uncertainty of India’s tax laws after the amendment. They have warned that the government decision especially the retrospective clause is ‘chasing in nature’ and this may pose questions about certainty about tax law of the country.

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