Vivad se Vishwas scheme: Revised tax Bill addresses fears over tax on loss

Topics Income tax

The original Bill had proposed that the company could settle the case under the scheme by paying taxes
Faced with resentment from industry, the government has tried to allay firms’ concerns about paying taxes even they incur losses under the Vivad se Vishwas scheme, in the revised Bill that was approved by the Cabinet recently.

The earlier version of the Bill, tabled in Parliament, triggered fears that firms will have to pay taxes in cases their losses were reduced by income tax officers.

The revised Bill gives companies two options in such cases. They can pay tax on reduced losses and adjust the entire losses to incomes in future years. Alternatively, they can pay a penalty of 25 per cent and adjust only the reduced losses to their future incomes.

For example, a company reports losses of Rs 100 crore, but I-T officers do not agree with the firm’s computation and reduce this to Rs 50 crore. The I-T officer then imposes a penalty that ranges from 50-200 per cent for hiding income. The company, in turn, appeals against the I-T department’s decision. The matter gets stuck there.

The original Bill had proposed that the company could settle the case under the scheme by paying taxes, which firms had questioned asking how they could pay taxes on losses.

In relation to the company mentioned above, this would mean that the firm can either pay tax on the reduced Rs 50 crore that it did not disclose and adjust the entire losses of Rs 100 crore to the income that it would generate in the future. Companies can carry forward such losses for eight years.

Alternatively, the company can pay 25 per cent penalty and carry forward only Rs 50 crore of losses.

Amit Maheshwari, partner at Ashok Maheshwary & Associates LLP, said, “there was confusion in the minds of taxpayers on the benefit of the scheme when there was litigation on account of reduction in losses by the tax officer. The proposed legislation has provided much-needed clarity.”

He said companies with no visibility of set-off losses will probably opt to accept reduced losses and pay only the penalty. The amended version of the Direct Tax Vivad se Vishwas Bill is likely to be tabled next month, when Parliament reconvenes after the recess.

The revised Bill makes the scheme attractive by expanding its scope to cover litigation pending in arbitration forums and debt recovery tribunals (DRTs). The scheme will also include cases related to small-value search disputes. The modified Bill also seeks to reduce the disputed amount by half for those assessees who got favourable orders that the I-T department challenged.

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