All you need to know about Taxation Laws (Amendment) Bill, 2021

The taxation laws are a very important part of the economic cycle of any society. These laws are for betterment of citizens as well as better governance by government. However, with time just like other things legal provisions also need a review and change as per the needs of the society. In this article our scope of discussion is Taxation laws amendment bill, 2021 which also aims to bring one such change.

Need of Taxation Laws (Amendment) Bill, 2021

As per the provisions of income tax law, the taxation of income takes place on the basis of residential status. Any person has to pay tax on income that accrues or arise in India. Due to this even in case of an indirect transfer of Indian Assets, person needs to pay tax in India.

Indirect transfer of Indian assets means transfer of assets located in India through the transfer of shares of a foreign company. Finance Act 2012 specifically clarified that even in case of transfer of share of a foreign company if assets, shares of that foreign company derives its values from an Indian Company or assets than it will be taxable in India. It further clarified that it will be applicable for transactions that happened even before Finance Act, 2012.

The effects of this amendment were:-

• The income tax department raised demands in some cases. Due to this there was conflict in taxation treaties with other countries. Companies were in dilemma of double taxation.
• The stakeholders opposed this type of amendments. As they question the certainty and uniformity of law.
• The companies criticised the raising of demands and argued that this is against the image of India of being a good investment option.

Owing to such criticism and also understanding the needs of stakeholders and country, government decided to bring Taxation laws amendment bill, 2021.

What is Taxation Laws (Amendment) Bill, 2021?

The bill aims to bring tax certainty. The main aim of the bill is to nullify, withdraw any income tax proceedings or demands in such cases. As per bill there are conditions to fulfil to nullify the effect of such demands.

The Taxation Laws (Amendment) Bill, 2021 was introduced in Lok Sabha on 05.08.2021. Lok Sabha passed the bill on 06.08.2021 and in Rajya Sabha on 09.08.2021. The bill received the assent of the Honourable President of India on 13.08.2021.

Now, let us see the amendments brought by this bill.

Amendments by Taxation Laws (Amendment) Bill, 2021

The bill has provided certain conditions to completely nullify the effect of demands made. The conditions to be fulfilled are:-

The refund if becomes due to any person then the same will be paid without interest.

If these above mentioned conditions are fulfilled then the demand raised in respect of this income-

• Deemed to be withdrawn/nullified.
• The order will be considered as never passed.
• Refund if due will be paid to the person.

Effect of the Amendments

The effects of the taxation laws amendment bill, 2021 are that all the demands raised in cases of indirect transfer of Indian Assets will be nullified. The bill also amends the charging section i.e. Section 9.

The amendment adds a proviso to the Section 9 to exclude the cases of indirect transfer of Indian Assets. Now, the income of any assessee cannot be increased due to the demand raised because of indirect transfer of Indian Assets that took place before 28^th May, 2012.

Conclusion

The aim of taxation laws amendment bill, 2021 is mainly to counter the criticism from all stakeholders. The country is at a point where it cannot afford to lose foreign investments. Foreign investments play an important role in faster economic growth and employment. From past few years all policies and reforms by government are for the growth of industry and business in India. This taxation laws amendment bill, 2021 is also one such move.