Personal Finance

How Vivad se Vishwas benefits taxpayers

Disputes settled under this scheme will not be reopened under any law

Vivad se Vishwas (VsV) is the latest in a series of dispute settlement schemes introduced by the Centre. It seeks to minimise numerous litigation pending at various levels, through a one-time settlement of the disputed tax.

The Bill received Presidential assent and became an Act on March 17, 2020. It applies to any person who has a pending litigation as on January 31, 2020, before any appellate forum, be it the Commissioner of Income Tax (Appeals), Income Tax Appellate Tribunal, a High Court or the Supreme Court.

Besides, pending issues before the Dispute Resolution Panel are also covered and eligible for settlement under VsV.

In the notified version of VsV, any person opting for it had to pay only the disputed tax/interest or penalty as applicable (50 per cent of the said amount in case of a revenue appeal) provided the same was done on or before March 31, 2020.

Payments beyond that till June 30 2020, would need to factor an additional levy of 10- 35 per cent. However, further to the relaxations announced by Finance Minister Nirmala Sitharaman on March 24, 2020, the first timeline which was March 31, 2020, has been extended to June 30, 2020.

Besides, there will be no additional levy (over and above the disputed tax amount) for all payments done till that date. Accordingly, one can opt for VsV and pay only the disputed tax till June 30, 2020.

Why this scheme

The Finance Minister, in her Budget speech, indicated that there are 4,83,000 direct tax cases that are pending at various appellate forums.

VsV is intended to be a dispute resolution scheme that aims to minimise this number, by bringing the pending disputes to a closure.

If revenue gets the disputed amount of tax, for the taxpayer, there is no outflow in the form of interest and penalty. This can result in significant savings since interest alone can exceed the tax amount in case of long pending disputes.

Add to it, the penalty, and the numbers shoot up.

For example, let us assume ‘A’ has a pending appeal before the Appellate Tribunal relating to tax year 2010-11 where the disputed tax is ₹20 lakh. Assuming that 50 per cent of the tax is outstanding and a monthly interest of 1 per cent for 108 months, the interest alone would aggregate to ₹10.80 lakh. Here, the interest overshoots the unpaid tax.

If you add penalty, we are looking at an outflow of ₹50.80 lakh (tax: ₹20 lakh; penalty at 100 per cent: ₹20 lakh; interest ₹10.80 lakh), as against ₹20 lakh under VsV.

‘A’ also had 50 per cent of unsettled taxes at disposal which could have been used to earn further income. If ‘A’ had paid more than what was due, or any refunds due were adjusted by the tax authorities in excess of the disputed tax, these may have to be refunded to ‘A’.

However, there would be no interest on such refunds.

Aims to end litigation

VsV also comes with an assurance that the dispute that is being covered will not be reopened either under the Income Tax Act or any other law or agreement, including bilateral ones.

Taxpayers can breathe a sigh of relief that once the matter is settled under VsV, they do not have to fear any further action with respect to the same.

Additionally, it is expressly clarified that opting for VsV is aimed at bringing the litigation to a close and should not be viewed as accepting the position of the opposite party.

For example, if tax authorities have disallowed a claim made by the taxpayer in the return of income and this is currently in appeal, merely because the taxpayer opts for VsV would not mean that the claim made in the return is wrong.

It only means that the taxpayer wants to end the dispute through VsV. Therefore, this cannot be used by tax authorities against the taxpayer at any future point of time.

On the procedural side, the authorities have notified five forms in numerical order, starting with the declaration and undertaking, to issuance of the order. Continuing with the digitisation drive of the government, the forms need to be filed electronically with the stipulated authority.

This does away with the requirement to visit the tax office, besides providing extra time for taxpayers.

From the above paragraphs, it is reasonably clear that VsV can provide both monetary and emotional relief to a tax payer. With the government extending the time window till June 30, 2020, taxpayers have time at their disposal to make an informed decision whether or not to opt for VsV.

Sudhakar Sethuraman is Partner, Deloitte India; Radhika Viswanathan is Director with Deloitte Haskins and Sells

Published on April 12, 2020

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