Government may consider waiving tax penalties

Faced with criticism over the proposed amendments to tax laws with retrospective effect, the government may dilute the provisions to allow waiver of penalties on tax demands to be raised on Vodafone-like acquisitions involving domestic assets.

‘Adding a clause to allow waiver of penalty for deals which took place before 1 April 2012 is being considered by the government,’ a senior finance ministry official said. Once the changes go through, Vodafone could be an immediate beneficiary as it won’t have to pay about Rs 7,900 crore penalty. However, it would still have to pay an interest of Rs 4,500 crore.

Vodafone, in any case, can approach income tax settlement commission to seek waiver of penalty, but in that case it would have to deposit the demanded tax along with interest.

The income tax department had raised a Rs 11,000 crore tax demand from Vodafone for its acquisition of Hutchison stake in Hutchison-Essar in 2007 through a deal in Cayman islands. But the Supreme Court struck down the tax claim.

The government in the inance Bill, 2012 has proposed amendments in the Income-tax Act, 1961, with retrospective effect to bring in tax net overseas mergers and acquisitions involving Indian assets.

After Parliament’s nod, the amended Income-tax Act, 1961 will become operational from 1 April, 2012. The move may fetch Rs 35,000-40,000 crore tax revenue for the government.