According to the dictionary,the term "restrospective" means looking again the past.
And in taxation, retro tax means giving an effect to the amendment in the existing law before the date on which the changes were proposed. In simple words, under retro tax, a transaction that took place before the law comes to act, is taxed. It can be a new or additional charge on transactions happened in the long past.
The government uses retro tax when it feels that the policies in the past & present are vastly different and the tax paid in the past under the old policy is very less. The effect of retro tax is that it could correct the situation by charging tax under the existing policy. Retro tax prevents firms that take benefit from any loophole that exists because of the past taxation policies.
We can also find countries like US, UK, Australia, Canada, Netherlands, Belgium, Italy and India have retrospectively taxed firms.
Retro tax was introduced by the UPA government in 2012, as an amendment to the Income tax Act 1961, asking companies ( Vodafone India and Cairn Energy) to pay tax on mergers and acquisitions that happened before date.
However, the Indian government on August 5th, 2021, proposed to withdraw all tax demands under retro law brought in 2012 and decided to refund the money so collected.
