In an attempt to soothe frayed nerves of industrialists and anxious investors, the government is examining a proposal to clarify its stand on the controversial retrospective taxes and make it apply only in exceptional cases.
The Centre plans to make the proposal applicable to matters that are "genuinely clarificatory" in nature, sources said.
Besides, the government is also examining a proposal to not levy any penalty interest in cases where tax demands have been raised following the amendment of tax rules retrospectively.
President Pranab Mukherjee in his speech to both houses of Parliament earlier this month had said that the new government will "embark on rationalisation and simplification of the tax regime to make it non-adversarial and conducive to investment, enterprise and growth."
He also said that the government will create a policy environment "which is predictable, transparent and fair."
This was being seen as oblique critique of the previous government's controversial policy to impose a "retrospective tax," which had fuelled fears of an uneasy business environment for foreign entities.
In the budget for 2012-13, Mukherjee proposed changes in India's 50-year-old tax laws to impose a retrospective provision for tax on some types of international mergers that may include Vodafone's 2007 acquisition of Hutchinson's mobile assets in India for $11.1 billion (about Rs. 68,000 crore currently).
"The taxation regime would be stable and predictable in line with principle to create trust," a source said.
Last week, the government named former Supreme Court chief justice RC Lahoti as the arbitrator in the Rs. 20,000-crore seven-year-old tax dispute with Vodafone.