After amending the Income Tax Act (IT Act) in 2012 to impose taxes retroactively on indirect transfers involving non-residents, India recently nullified this law. Towards the end of 2020, two investor-state dispute settlement (ISDS) tribunals under the India-Netherlands and India- United Kingdom bilateral investment treaties (BITs) found India’s retroactive tax in breach of India’s BIT obligations. These arbitral defeats incited India to eliminate the infamous 2012 retroactive amendment to the tax laws. This article documents and analyses the sordid saga of nine long years by explaining the origin, evolution, and culmination of India’s retroactive tax misadventure. Considering the increasing number of instances for which foreign investors use the ISDS mechanism to challenge the host state’s sovereign taxation measures as BIT breaches, the ISDS rulings against India, especially by the tribunal in Cairn Energy v. India, assumes significance. A more comprehensive reading of the tribunal’s reasoning in Cairn Energy v. India elucidates that, while taxation measures are indeed an integral part of the state’s sovereign right to regulate, it has to be exercised reasonably and proportionately when furthering a public purpose. The exploitation of the power to tax disproportionately may prove to be detrimental to the state.