Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

August 11, 2021

India proposes to remove retrospective applicability of indirect transfer tax regime

Executive summary

The Indian Government introduced The Taxation Laws (Amendment) Bill, 2021 (the Bill)1 on 5 August 2021 to withdraw the retrospective application of the indirect transfer tax provisions. Upon enactment of the Bill as Law, indirect transfer tax provisions shall apply only on transactions occurring on or after 28 May 2012 (the “specified date”). Indian tax demands pertaining to indirect transfers for earlier tax years will be nullified; all pending assessments cancelled and taxes previously collected on the basis of prior demand orders will be refunded.

This Alert summarizes the Bill and implications for taxpayers.

Detailed discussion


The issue of the taxability of gains arising from the transfer of shares of a foreign company deriving substantial value from assets in India (indirect transfer) was a subject matter of intense litigation in India until 2012. The apex court of India2 in a landmark 2012 judgment3 settled litigation in favor of the taxpayer.

Immediately after the judgment, the Indian Government introduced certain “clarificatory” changes to the Income Tax Laws (ITL) providing that the transfer of shares or interests in a foreign entity were taxable in India, if such shares derive substantial value from assets located in India. These clarificatory changes were applicable with retroactive effect from 1 April 1962. Pursuant to this amendment, the Indian Tax Authority sought to sustain its earlier tax assessments or issued new tax assessments in 17 cases resulting in huge tax demands. Some of the taxpayers initiated international arbitration under the Bilateral Investment Protection Agreements (BIPAs), a couple of which were concluded and awarded against the Indian Government.

The amendments made by the Finance Act 2012 giving retrospective effect to the indirect transfer taxation provisions resulted in criticism from various stakeholders as it worked against the objective of the Indian Government to provide tax certainty and damaged India’s reputation as an attractive investment destination. The retrospective amendments and the subsequent international arbitrations have had an adverse impact on India’s image as an investor-friendly jurisdiction.

Proposals of the Bill

Provisions relating to assessment and penalty orders in respect of income arising from indirect transfers undertaken prior to the specified date

  • No assessment orders, reassessment orders, rectification orders which enhance the assessment or reduce a refund or otherwise increase the tax liability or order for deeming a person to be an assessee-in-default for failure to withhold taxes shall be passed if it pertains to income arising from an indirect transfer undertaken prior to the specified date.
  • If a penalty order or any of the specified orders have already been passed in respect of an indirect transfer undertaken prior to the specified date, then the same shall be deemed to never have been passed if the taxpayer satisfies the following conditions (specified conditions):
    • The taxpayer either withdraws or submits an undertaking to withdraw any pending appeals, writ petitions, or civil appeals,4 in respect of income arising from indirect transfer undertaken prior to the specified date.
    • The taxpayer withdraws or submits to withdraw any proceedings for arbitration, conciliation or mediation initiated by the taxpayer and/or any claim5 in such proceedings in respect of income arising from an indirect transfer undertaken prior to the specified date.
    • The taxpayer submits an undertaking to waive its right to seek any remedy or claim which may otherwise be available to the taxpayer under any other law or agreement for the time being in force or under any international agreement entered into by India in such form and manner as may be prescribed.
    • Such other conditions as may be prescribed by the Indian Tax Administration.

Refund upon cancellation of assessment/inapplicability of notices issue

  • Any refund that becomes due to the taxpayer as a consequence of any assessment or demand order or recovery becoming invalid as indicated above shall be granted to the taxpayer. However, there will be no payment of interest on such refund amount.


The withdrawal of the retroactive effect of the indirect transfer tax provisions is a welcome move for taxpayers. However, it is subject to conditions such as the withdrawal of pending appeals, writs and special leave petitions, arbitration, mediations, and conciliations (if any) initiated by the taxpayer. In addition, the taxpayer is required to give an undertaking waiving all of the taxpayer’s rights to pursue any claim or remedy under any other law in force.

Taxpayers who wish to avail of the benefits of the proposals under the Bill will need to weigh their options and determine an appropriate course of action. Taxpayers will need to carefully evaluate the trade-off between enforcing the arbitral award comprising damages and interest in addition to tax and complying with conditions prescribed in the Bill to have any demands annulled and/or refund of principal amount of tax without interest.

Further, taxpayers who may have already settled their disputes under the Vivaad Se Vishwas Scheme (VSV) may face difficulty in claiming any refund under the proposed Bill since no refund is available for payments made under the VSV.

As a legislative process, the Bill must be approved by the President of India before it gets enacted as a law.


For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (India), Mumbai

Ernst & Young LLP (India), Bangalore

Ernst & Young LLP (United States), Indian Tax Desk, New York

Ernst & Young LLP (United States), Indian Tax Desk, San Jose

Ernst & Young Solutions LLP, Indian Tax Desk, Singapore

Ernst & Young LLP (United Kingdom), Indian Tax Desk, London

Ernst & Young LLP (United States), Asia Pacific Business Group, New York



  1. The Bill was passed by the Lower House of Parliament on 6 August 2021 and by the Upper House of Parliament on 8 August 2021.
  2. The Supreme Court of India.
  3. Vodafone International Holdings B.V. v. UOI (2012) 341 ITR 1.
  4. Manner and form to be prescribed in future.
  5. Manner and form to be prescribed in future.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


Copyright © 2024, Ernst & Young LLP.


All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.


Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.


"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.


Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or Please refer to the privacy notice/policy on these sites for more information.

Yes, I accept         Find out more