Income Tax Department has slapped a Rs 20,495 crore tax demand on Cairn India for failing to deduct withholding tax on alleged capital gains made by its erstwhile promoter, Cairn Energy Plc.

Cairn India said it does not agree with the tax demand and will pursue all possible options to protect its interest.

Earlier this week, the I-T Department had slapped a Rs 10,247 crore tax demand on Cairn Energy Plc for an alleged Rs 24,500 crore worth capital gains it made in 2006 while transferring all its India assets to a new company, Cairn India, and getting it listed on the stock exchanges.

"Cairn India Ltd has received an order from the Income Tax Department on Friday for an alleged failure to deduct withholding tax on alleged capital gains arising during 2006-07 in the hands of Cairn UK Holdings Limited (CUHL), our erstwhile parent company, a subsidiary of Cairn Energy Plc," the company said in a regulatory filing.

This, it said, was in respect of the transaction of CUHL transferring the shares of Cairn India Holdings Ltd (CIHL) to Cairn India Limited as part of internal group reorganisation in 2006-07 to facilitate the IPO of Cairn India Ltd.

"A demand of approx Rs 20,495 crore (comprising tax of approx Rs 10,248 crore and interest of approx Rs 10,247 crore) is alleged to be payable.

Cairn India does not agree with this alleged demand and will pursue all possible options to protect its interest," the company said. Cairn India said it has always been fully compliant with all Indian income tax laws.

"Income tax assessments, including transfer pricing assessment were duly completed for FY 2006-07, earlier," it said.

The company is latest to join a slew of multinational firms, including Vodafone Group Plc and Royal Dutch Shell Plc, to face tax demand owing to a retrospective tax law.