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What is retrospective taxation? What has been the trend in India with respect to retrospective amendments of taxes? Explain.

Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

5. What is retrospective taxation? What has been the trend in India with respect to retrospective amendments of taxes? Explain. (250 words)

Reference:  Indian Express

Why the question:

British oil company Cairn Energy Plc is suing Air India in New York to seize its assets to enforce the $1.2 billion arbitration award it won against the Indian government in a retrospective tax dispute. Thus the question.

Key Demand of the question:

Discuss in detail the concept of Retrospective taxation and the trends in India with respect to it.

Directive:

Explain – Clarify the topic by giving a detailed account as to how and why it occurred, or what is the particular context. You must be defining key terms where ever appropriate, and substantiate with relevant associated facts.

Structure of the answer:

Introduction:

Start with what you understand by Retrospective taxation.

Body:

Retrospective taxation allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the law is passed.

Countries use this route to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes. While governments often use a retrospective amendment to taxation laws to “clarify” existing laws, it ends up hurting companies that had knowingly or unknowingly interpreted the tax rules differently.

Apart from India, many countries including the US, the UK, the Netherlands, Canada, Belgium, Australia and Italy have retrospectively taxed companies, which had taken the benefit of loopholes in the previous law.

Discuss in detail the trends in India.

Conclusion:

Suggest way forward and conclude.