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The government has set in motion a fresh set of amendments to the tax laws that will nullify the retrospective tax amendment provisions introduced in 2012 that set to tax any gains on indirect transfer of Indian assets made by foreign entities.

The Bill proposes to amend the Income Tax Act, 1961 so as to provide that no tax demand shall be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before May 28, 2012 - when the finance bill was passed by Parliament in 2012.

The bill also proposes to provide that the demand raised for indirect transfer of Indian assets, made before May 28, 2012, shall be nullified on fulfilment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking to the effect that no claim for cost, damages, interest, and others shall be filed.

Further, as per the bill, the amount paid in these cases would be refunded without any interest thereon.

This Bill would give UK's Cairn Energy and Vodafone Plc a window to do away with the arbitrations and settle their long-drawn tax disputes with the government.

An arbitration tribunal in The Hague had pronounced its award on December 21, 2020 in favour of Cairn Energy Plc and Cairn UK Holdings Ltd (CUHL), making the Indian government liable to pay an arbitration award of $1.2 billion to it.

Recently, the government confirmed in the parliament that a French court has directed the freezing of certain properties of the Indian government in the matter pertaining to the Cairn arbitration award.

Further, in the Vodafone arbitration case, the Permanent Court of Arbitration at The Hague ruled in favour of the company last year.

The court ruled that the conduct of India's Tax Department is in breach of "fair and equitable" treatment, thereby rendering Vodafone not liable to pay a retrospective tax demand of more than Rs 20,000 crore raised by Indian authorities.

Tax expert and former President of the Institute of Chartered Accountants of India, Ved Jain was of the the development would be a big relief for Vodafone and Cairn.

"The Taxation Laws (Amendment) Bill, 2021, introduced by FM today in the Lok Sabha, is about withdrawing retrospective amendment made in 2012 of taxing capital gains arising from indirect transfer of assets located in India. This will settle issue of arbitration as under the Indian Income Tax Act itself, no tax will be payable on such capital gains up to May 28, 2012 when this amendment came into force," he said.