The Narendra Modi government has added a sting to the retrospective tax amendment that will make it harder for companies like Cairn Energy to exit from the country without any liabilities.

The government has tacked on a condition in the rules underlying the tax amendment passed in early August that would require entities like Cairn Energy to indemnify the Indian government against any future claims relating to their disputes that have dragged on before courts in India and abroad for over a decade.

The rules, which were notified late on Friday, say the companies looking to shake off the rigours of the retrospective tax imposed in 2012 will have to furnish an indemnity and commitment not to seek any damage from the Indian government or its affiliates —with the obligation extending to any other interested party that might emerge in the future because of business restructuring.

The government has promised to pay Cairn a sum of Rs 7500 crore which is only a part of an international arbitration award of $1.2 billion along with interest that the Edinburg-based oil explorer was granted in December last year.

Tax experts say the rules indicate that the repayment will take a minimum of 2-3 months — but only after an open-ended commitment on indemnity is made.

Under the rules, the companies will have to withdraw any pending litigation or proceedings before any forum against the levy of the retrospective tax and also give an assurance that they won’t pursue any further claims in the future.

In addition, the companies and any other interested party will have to furnish an indemnity bond committing not to seek damages from the Indian government or its affiliates. Companies will have to file a declaration with the income tax authorities along with a board resolution or legal authorisation besides an indemnity bond, the rules said.

The freedom from the retro tax has been granted to companies that had restructured their businesses in the country prior to May 28, 2012 — the date when the amendment took effect.

The Income Tax (31st Amendment) Rules, 2021, introduce a new portion pertaining to ‘indirect transfer prior to 28th May, 2012 of assets situated in India’, and lay out the conditions and formats for undertakings to be submitted by all ‘interested parties’ to the tax department in order to settle their tax disputes.

The affected taxpayers, along with all the interested parties will have to give up all claims in any ongoing legal proceedings, including arbitration, mediation efforts and attachment proceedings, with an explicit undertaking that such initiatives will not be reopened under any circumstances.

In order to pre-empt the possibility of an unknown interested party invoking fresh claims against the government in the future, the rules stipulate that the ‘declarant and all the interested parties shall indemnify, defend and hold harmless the Republic of India and Indian affiliates from and against any and all costs, expenses, interest, damages, and liabilities of any nature arising out of or in any way relating to the assertion or, bringing, filing or maintaining of any claim, at any time after the date of furnishing the undertaking.’

The I-T Rules also require the taxpayer and all the interested parties to issue a public notice or press release explicitly stating that ongoing claims against these tax demands ‘no longer subsist’ and they have signed an indemnity undertaking.