In a move to reduce the pending litigations, the Union Budget 2019 had proposed ’Sabka Vishwas’ scheme under indirect taxes. The said scheme turned out to be a huge success. On similar lines, Union Budget 2020 announced ’Vivad Se Vishwas’ scheme to reduce 483,000 appeals pending before various appellate forums under Direct Taxes.

The scheme has been introduced with the objectives of reducing litigation that consume a substantial amount of time, energy, and resources both in the form of loss of funds and others. It is believed that the scheme will provide a resolution to the disputes and also generate timely revenue for the government.

A necessary bill following the scheme was introduced in the Parliament on 5 February 2020. As per recent reports, the government has now given a notice for moving amendments to the above bill. Such amendments are expected to be tabled when Parliament is next in session, i.e., 2 March 2020. The scheme would be put into effect only after receiving the receipt of the President’s assent.

The highlights of ‘The Direct Tax Vivad Se Vishwas Bill 2020’ (Scheme) are as under:

What is covered under the Scheme?

Following requisitions pending on or before 31 January 2020, are eligible for closure under the Scheme:

  • Appeals before any appellate forum, filed by taxpayers or the revenue authorities;
  • Writ Petition or Special leave petition, filed by taxpayers or the revenue authorities;
  • Objections filed before Dispute Resolution Panel (‘DRP’);
  • Final Assessment Order pursuant to DRP directions;
  • Revision Applications under section 264;
  • Orders passed by AO/ lower appellate authorities on or before the above date and time limit to file the appeal is yet to expire;
  • Assessments made pursuant to search/seizure (including the year of search) if the amount of disputed tax is up to INR 5 Crores;
  • Appeals where enhancement of income has been proposed by CIT(A).

The amount payable under the scheme

A taxpayer opting for resolution under the scheme is required to pay the amounts as per the table below:

Nature of Disputed Amount Up to March 31, 2020 Post-March 31, 2020
Aggregate of tax and/ or interest/penalty- Search Cases 125%* of tax 135%* of tax
Aggregate of tax and/or interest/penalty-Others 100% of tax 110%* of tax
Disputed interest/ penalty/fee 25% 30%

* (10%/ 25%/ 35% towards interest/penalty not to exceed the amount of interest/ penalty)

  • 50% of the above amounts to be paid, where:
    • Appeal or writ petition or SLP filed by revenue;
    • Appeal or objections filed by a taxpayer before CIT(A)/ ITAT or DRP and issue is covered in its favor in its own case, without any reversal by any higher appellate authority.

The scheme further provides the mechanism for computation of the above tax, under different scenarios.

Key Benefits under the scheme

The Scheme offers the following advantages:

  • Payment of only the disputed tax (up to March 31, 2020);
  • Waiver of interest;
  • Waiver of penalty;
  • No prosecution;
  • Closure to pending litigation.

Rules Awaited

Though CBDT has come with certain clarifications in the form of FAQs, it still needs to come up with the necessary rules for determination of ‘amount payable’ under various scenarios. Such rules are also subject to necessary validation by both the Houses of Parliament.

Way forward

In our view, this scheme provides a good opportunity to settle long-pending disputes with the Indian Tax Authorities and provides relief from penalty implications. It would be recommended for all the companies to look at the litigation status, carry out a cost-benefit analysis for opting under this scheme, and make an informed decision.