The government has introduced a bill in Parliament detailing the Direct Tax dispute settlement scheme. The Direct Tax Vivad se Vishwas Bill, 2020 for dispute resolution related to direct taxes, proposes less payment or discounted payment for dispute settlement if the tax payer settles before the end of this financial year as compared to if he/she decides to settle and pay under the scheme after March 31, 2020 but before the last date of the scheme.
Shefali Goradia, Partner, Deloitte India says, “While this measure is much needed given the number of pending direct tax cases in India, given the stringent window available to the taxpayers for withdrawing their appeals and opting for the Scheme, the number of taxpayers who will be able to avail of the scheme by March 31 may be limited. It will be good if the timeline can be extended. The Government will shortly release the final version of the Scheme along with the procedural aspects involved therein.”
Ganesh Raj, National Leader, Business Tax Services, EY India, said, “A long awaited measure! This will also bring finality to litigation which has been pending for a long time for the taxpayers. Tax authorities should also take this as a campaign to achieve the objective and also educate the taxpayers of this one time opportunity.”
The bill introduced in the Parliament says that the last date of the scheme is to be notified by the government. However, Finance Minister Nirmala Sitharaman in her budget speech said that the last date of the scheme is June 30, 2020. This early bird discount may well be offered in order to boost tax collections in the current fiscal.
Who can avail this scheme?
As per the bill, the scheme is applicable to: the appeals filed by taxpayers or the Government, which are pending with the Commissioner (Appeals), Income tax Appellate Tribunal, High Court or Supreme Court as on the 31st day of January, 2020 irrespective of whether tax demand in such cases is pending or has been paid; The pending appeal may be against disputed tax, interest or penalty in relation to an assessment or reassessment order or against disputed interest, disputed fees where there is no disputed tax. Further, the appeal may also be against the tax determined on defaults in respect of tax deducted at source (TDS) or tax collected at source (TCS).
Amount to be paid
As announced in the budget speech, a taxpayer who has a dispute with the income tax department can pay:
A) Where the tax arrears is reason of dispute
According to the bill, where the ‘tax arrears’ is the aggregate amount of ‘disputed tax, interest chargeable or charged on such disputed tax and penalty leviable or levied on such disputed tax’, then in such a case ‘amount of the disputed tax’ has to be paid before March 31, 2020.
If the taxpayer avails this scheme on or after April 1, 2020, then along with the ‘amount of tax disputed’, additional 10 percent of the disputed tax will have to be paid. However, if the 10 percent of the disputed tax exceeds the aggregate amount of interest chargeable or charged on such disputed tax and penalty leviable or levied on such disputed tax, the excess shall be ignored for the purpose of computation.
B) Where the dispute is related to interest or penalty amount
In case a dispute with the income tax department is due to disputed interest or disputed penalty or disputed fee, then before March 31, 2020, a taxpayer is required to 25 per cent of the disputed interest or disputed penalty or disputed fee.
A taxpayer availing the benefit on or after April 1, 2020 will get 30 per cent of the disputed interest or disputed penalty or disputed fee will be payable.
How the scheme will work
According to the bill containing scheme details, the designated authority, within a period of 15 days from the date of receipt of the declaration will determine the amount payable by the declarant (taxpayer) in accordance with the provisions of this Act (the scheme) and grant a certificate to the declarant containing particulars of the tax arrears and the amount payable after such determination, in such form as may be prescribed.
The taxpayer would be required to pay the amount determined by the designated authority (mentioned above) within 15 days of the date of receipt of the certificate and intimate the details of such payment to the designated authority in the prescribed form and there upon the designated authority shall pass an order stating that the declarant has paid the amount.
The scheme details mention that once the taxpayer avails to resolve the dispute with the tax authority under this scheme then the amount payable, shall be considered final and such cases will not be reopened in any other proceeding under the Income-tax Act.
The designated authority shall not institute any proceeding in respect of an offence; or impose or levy any penalty; or charge any interest under the Income-tax Act in respect of tax arrears.
Goradia says, “The Scheme is wide enough to cover all matters pending as on January 31, 2020 before any appellate forum. By withdrawing their appeals, filing a declaration and paying disputed tax within stipulated timelines, the taxpayers can put an end to their ongoing tax disputes. This move is targeted to reduce litigation in direct taxes, similar to the indirect tax ‘Sabka Vishwas’ scheme announced in Budget 2019, which was a big success.”
Who cannot avail the scheme?
The scheme cannot be availed by those taxpayers having tax arrears related disputes related as follows:
(i) relating to an assessment year in respect of which an assessment has been made under section 153A or section 153C of the Income-tax Act, if it relates to any tax arrear;
(ii) relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration;
(iii) relating to any undisclosed income from a source located outside India or undisclosed asset located outside India;
(iv) relating to an assessment or reassessment made on the basis of information received under an agreement referred to in section 90 or section 90A of the Income-tax Act, if it relates to any tax arrear;
(v) relating to an appeal before the Commissioner (Appeals) in respect of which notice of enhancement under section 251 of the Income-tax Act has been issued on or before the specified date;
(vi) to any person in respect of whom an order of detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 on or before the filing of declaration.