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Direct Tax Vivad se Vishwas Bill: How govt aims to reduce direct tax litigation

The Direct Tax Vivad se Vishwas Bill, 2020

Approx Read Time: 5 minutes
The Direct Tax Vivad se Vishwas Bill, 2020

In News:

  • The finance minister has introduced The Direct Tax Vivad se Vishwas Bill, 2020 in the Lok Sabha to give effect to the Budget announcement to resolve direct tax disputes.
  • The scheme is modelled on a similar scheme (Sabka Vishwas Scheme) for indirect tax which was announced in last year’s Budget.
  • The government has said that nearly 95% of 1.9 lakh outstanding cases were resolved under Sabka Vishwas Scheme, resulting in over Rs 35,000 crore of revenue for the government.

Need for the Bill to resolve Direct Tax disputes:

  • As many as 4,83,000 direct tax worth over Rs 9 lakh crore cases are pending in various appellate forums i.e. Commissioner (Appeals), ITAT, High Court and Supreme Court.
  • Tax disputes consume lots of time, energy and resources both on the part of the government as well as taxpayers and deprives the government of timely collection of revenue.
  • Therefore, there is an urgent need to provide for resolution of pending tax disputes.=

The Direct Tax Vivad se Vishwas Bill:

  • The bill offers waiver of interest, penalty and prosecution for settlement of disputes that are pending before the commissioner (appeals), Income Tax Appellate Tribunals (ITATs), high courts or the Supreme Court as on January 31, 2020.
  • The pending appeal may be against disputed tax, interest or penalty in relation to an assessment or reassessment order or against disputed interest or fee.
  • In fact, the appeal may even be against tax determined on defaults in respect to tax deducted or collected at source.
  • The scheme provides that if a taxpayer avails it by March 31, 2020, then he/she would get complete waiver of interest and penalty. However, a taxpayer who chooses the scheme post this cut-off date will have to pay the disputed tax and 10% of it extra.
  • In case of tax arrears pertaining to only disputed interest or penalty, 25% of the disputed penalty or interest will need to be paid while settling appeals up to March 31. Cases coming for resolution after this date would have to pay 30% of penalty and interest.
  • The order passed by the designated authority determining the amount payable will be final and no further recourse in terms of appeals, arbitration, mediation or conciliation will be available to the taxpayer.
Cases not covered under the scheme:
  • The scheme will not apply to prosecution cases under the Indian Penal Code (IPC), the Prevention of Money Laundering Act (PMLA) and the Prohibition of Benami Property Transactions Act.
  • Besides, the disputed tax amount should not relate to undisclosed foreign income, assets, assessment or reassessment.


Impact:

  • As the Bill emphasizes on trust building and provides a formula-based solution without any discrimination, it is expected that the scheme will reduce litigation expenditure for the government.
  • This will not only benefit the government by generating timely revenue but also the taxpayers, as they will be able to deploy time, energy and resources saved by opting for such dispute resolution towards their business activities.
  • The scheme will also come in handy for cases such as additions of unexplained cash deposited during demonetization, additions for penny stocks, etc. where factually the taxpayers have high exposures.
  • It would be beneficial for such taxpayers, to pay the tax amount and settle the disputes without imposition of interest and penalty.

Way Ahead:

  • In order to implement the Vivad Se Vishwas scheme, the CBDT needs database on such litigations pending at high court level.
  • Hence, the CBDT has asked all principal chief commissioners to collate the data on pending appeals in high courts and send it to it by next week.

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