is not a novel term when it comes to the administration of taxes, and more often than not it arises because of the difference of opinion
on the computation of the fair amount of taxes due from taxpayers. In the Indian context, according to the government’s data, an estimated amount of approximately Rs 9.32 trillion as on November 30, 2019, was locked in direct tax litigation
in around 483,000 direct-tax cases pending in various appellate fora. Taking cognizance of this fact and the consequential impact these litigations have in the form of pressure on the judiciary, the cost to the taxpayer
and delay in collection of disputed tax liability, the finance minister introduced a direct tax amnesty scheme, named the Vivad Se Vishwas (VSV) Scheme, in the Budget 2020-2021. The scheme provides for a mechanism for settling pending litigation
under the Income-tax Act, 1961. The FM has attempted to hit the bull's eye by trying to tackle two prominent issues together -- to compensate forgone tax revenue and to reduce direct tax litigation pending in various appellate fora.
The VSV Scheme provides the taxpayer
with an opportunity to settle pending litigations as on specified date i.e. January 31, 2020, by simply paying the tax on the disputed amount and getting a complete waiver of interest and penalty. The draft Bill, which was presented on February 5, 2020, contained the framework for implementation of the Scheme. The government also did several stakeholder discussions to ensure that the Scheme has wider acceptance and has been very receptive to concerns raised by taxpayers in respect of the Scheme, whether on technical interpretations or on practical aspects of implementation. Accordingly, in addition to amendments brought in the Bill at the time of bringing it to Parliament, the Central Board of Direct Taxes (CBDT) issued a Circular in form of FAQs explaining various aspects of the Scheme. The FAQs deal with the issues regarding the eligibility of a taxpayer
to opt for the VSV Scheme in different situations, the manner of computing the quantum of disputed tax payable, consequences under the VSV Scheme, certain procedural aspects, etc.
The government has tried to make the Scheme flexible and easy to implement, providing equity in corresponding tax treatment which is notably reflected in amendments, such as the option to select particular appeal for settlement instead of all eligible appeals for a particular tax year, eligibility of deduction for the expense disallowed earlier because of non-compliance with TDS tax provisions if the taxpayer chooses to settle the TDS appeal, etc. Another significant proposal in the revised Scheme is the payment of 50 per cent of disputed tax in case of appeals filed by the tax department.
It is also worthwhile to appreciate the efforts being made by the revenue authorities to make the most of this scheme by allowing continuous engagement with stakeholders and being open to constructive feedback to improve the Scheme.
From taxpayers’ point of view, this Scheme provides a good window of opportunity to reduce litigation and it must be evaluated positively. Having said that, the complexities peculiar to direct tax cases like the multiplicity of issues involved with different level of confidence of success, the potential impact of settlement in one year on past years, as well as future years, the multiplicity of fora where the issues are pending make the choice of settlement a very involved and fact-intensive decision. Further, the issues that involve valuation aspects i.e. transfer pricing matters may be more amenable to a negotiated settlement compared to a binary resolution under the Scheme. The APA (advance pricing agreements) mechanism has been a great option for such matters. However, issues that are unique or one time and TDS matters will find a great place for resolution.
The final Scheme appears to be very beneficial for both government and taxpayers. It should enable a fair way of settlement of cases which may otherwise possibly take many years to attain finality. Given the short timeline provided in the Scheme, it requires immediate consideration by taxpayers and working with the field offices to expedite all pending administrative aspects in the preparation of the resolution.
The writer is tax partner, EY India. Vishal Pandey, senior tax professional, EY, also contributed to the article. Views expressed are personal