Dismissing the criticism of government's decision to amend I-T Act with retrospective effect, the finance ministry today said the proposed change will not impact foreign investment flows.
"The apprehension that the retrospective amendments would create negative sentiment for FDI is not correct. FDI comes when there is profitability, FDI does not come only on account of zero tax," finance secretary RS Gujral told industry leaders in a post-budget interaction.
As per the amendment proposed in the I-T Act by finance minister Pranab Mukherjee on Friday, all persons, whether resident or non-residents, having business connection in India will have to deduct tax at source and pay it to the government even if the transaction is executed on a foreign soil.
The amendments, once carried out, will have implications on Vodafone which won Rs 11,000-crore tax dispute case against tax authorities in the Supreme Court. It will also impact other similar cases involving taxes to the tune of about Rs 30,000 crore.
Gujral further said a couple of years ago, China had imposed 15% tax on such transactions but it did not impact FDI flows there. The FDI in China increased by 17% in 2010 and 10% in 2011, Gujral added.
He said since the Vodafone transaction was not taxed either of the countries, it is susceptible to 10% tax tax in India.