Retrospective amendment to Income Tax Act not to impact FDI: Kaushik Basu

Chief Economic Advisor Kaushik Basu has said amending the Income Tax Act with retrospective effect will not impact foreign direct investments (FDI) into India.

In Budget 2012, the finance ministry had proposed to introduce a retrospective provision for tax on some types of international mergers.

"I don't think there is going to be any negative effect on investor sentiment at all. This is being seen as a one off thing... There were certain aberrations, certain misunderstandings on the law that we have adjusted," Basu said.

Various corporate bodies from US and UK had cautioned that such tax proposals could dent India's image as an investment hotspot.

The issue pertains to a Budget proposal to amend the Income Tax Act, 1961, with retrospective effect to bring into tax net overseas mergers and acquisitions involving assets in India. Such amendment will bring Vodafone type deals under the tax net.

FDI flows into India has continued unabated with a highest ever monthly inflow in March at $8.1 billion. Cumulative FDI inflows for 2011-12 amounted to $36.50 billion.