India had lost the case against Vodafone and in December last year, filed an appeal.
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A new bill that will undo the tax suggests that Cairn, Vodafone and other companies could get a refund of whatever they have paid to the government, without interest.
The move comes as Vodafone battles a sharp drop in its market cap following billionaire Kumar Mangalam Birla's letter to the government offering his 27 per cent stake. Mr Birla quit the Vodafone board yesterday.
Cairn and Vodafone filed lawsuits in international courts against the retrospective tax, both of which India lost.
In both judgments, the international arbitration tribunal in The Netherlands ruled that India must not make any more attempts to recover "the alleged tax liability or any interest and or penalties".
In September last year, India lost the case against Vodafone. It filed an appeal in December.
The government had made a tax demand of Rs 11,000 crore related to Vodafone's $11 billion acquisition of Indian mobile assets from Hutchison Whampoa in 2007.
The tribunal had ruled that imposition of tax liability on Vodafone, as well as interest and penalties, breached an investment treaty agreement between India and the Netherlands.
The tribunal also said the government should pay more than Rs 40 crore to the company as partial compensation for legal costs.
In 2012, the Supreme Court ruled in favour of the telecom provider but the government later that year changed the rules to enable it to tax deals that had already been concluded.
In the face-off against British oil major Cairn, the international tribunal said India's demand of retrospective tax "in breach of the guarantee of fair and equitable treatment".
