What Is Retrospective Tax: 5 Points

Retrospective Tax: An international arbitration tribunal last year ruled that India's imposition of a tax liability on Vodafone breached of an investment treaty

What Is Retrospective Tax: 5 Points

Retrospective Tax is done to make adjustments when policies in past and present are different.

Highlights

  • Retrospective tax is charged for transactions in the long past
  • Retrospective tax is corrective in nature
  • Retrospective tax faces resistance from taxpayers
New Delhi: A retrospective tax is one that is charged for transactions in the long past. It can be a new or additional charge on transactions done in the past. The government has moved to do away with retrospective tax now.

Here's your 5-point guide to this big story:

  1. Ideally, retrospective tax is to make adjustments when policies in the past and the present are so vastly different that tax paid before under the old policy could be said to have been less.

  2. Retrospective tax could correct that situation by charging tax under the existing policy.

  3. However, retrospective tax faces resistance because taxpayers would have paid under the earlier regime by complying with the rules at that time, and taking into account their entire budgeting ecosystem.

  4. Prudent financial management may get disrupted when retrospective tax is charged since taxpayers would be paying an additional amount.

  5. The most controversial retrospective tax amendment in India is the 2012 version, which said tax is payable on indirect transfer of Indian assets before May 2012.