The finance ministry on Friday proposed in the Union Budget some changes in the country''s tax rules retrospectively from 1962. This means transactions that took place outside India are taxable. This includes the $11.08 billion (around Rs 55,735 crore today) Vodafone-Hutchison deal. 

The amendment which seemed to be an attempt to overrule the Supreme Court’s verdict on Vodafone-Hutchison deal will be applicable to the assessment year 1962-63. This will have an impact on many foreign investments which will now be open to taxation.

The move assumed significance as the government has filed a review petition in SC on this deal and it will have to be reconsidered in the light of the changes in tax laws.

“For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India,” according an explanations inserted into the I-T Act. On 20 January

“We are examining the proposed decision with our lawyers but we do not believe this retrospective change in tax laws should have any impact on the final judgement of the Supreme Court," Vodafone Plc said in a statement.

"Our assessment is that total impact of such cases would have been to the tune of Rs 35,000-40,000 crore," Revenue Secretary RS Gujral told reporters.

Finance secretary RS Gujral told reporters that there was “no question” of raising any fresh tax demand on Vodafone, but referred to the review petition filed by the tax office in the Supreme Court.

The proposed amendment in tax rules may also be also significant for other multi-national companies including Kraft Foods, SABMiller and AT&T Inc, which also face potential tax demands in India over cross-border deals.