The government’s ambitious Income Tax amnesty scheme — Vivad se Vishwas — announced in the Union Budget speech by Finance Minister Nirmala Sitharaman was low on detail and the fine print was eagerly awaited. After many discussions with stakeholders who sought clarifications, amendments were made by the Union Cabinet to the Direct Tax Vivad Se Vishwas Bill, 2020, that was introduced in the Lok Sabha, and is pending approval of the Rajya Sabha.

The Income Tax Department came out with a list of frequently asked questions (FAQs) last week to clarify many issues under the scheme. Here are some of the important clarifications that will be of use to income taxpayers looking at the scheme to settle pending cases.

Procedure change

The amendments to the procedure for application under the Vivad Se Vishwas scheme have undergone some changes. You don’t have to withdraw your appeals with the High Court and Supreme Court before you receive a certificate from a designated officer stating the tax arrears payable by you under the scheme.

The earlier procedure under Vivad se Vishwas required an assessee to make a declaration with the designated officer, to receive the certificate of tax arrears payable under the scheme. This declaration had to be accompanied with the proof of withdrawal of appeals. Then the proof of payment needed to be submitted to the designated officer to settle all matters relating to those disputes.

Under the amended procedure, the proof of withdrawal of appeals has to be submitted only with the proof of payment of tax arrears as mentioned in the certificate issued by the designated officer.

No part-settlement

There are many income tax disputes in which there are multiple issues that are in appeal regarding assessment order issued by an assessing officer. These could be disallowance of expenses, income that was considered not taxable by the assessee being charged to tax by the department, and disallowance of income deductions under Chapter VI-A, among many others. The FAQs state that if there is a tax dispute that contains multiple such disputes, and none of them have been settled in appeal, or have reached finality, then all such disputes must be settled together.

This is likely to cause hardship to many taxpayers who might believe that they have a genuine case with respect to certain issues for a particular assessment year based on court rulings. This might leave them in two minds on whether to opt for the scheme or not, and might inadvertently lead to income tax disputes persisting for a longer period.

Tax position

The department has clarified that settling a case through the Vivad Se Vishwas scheme doesn’t automatically mean that the Income Tax Department has conceded its position for other future cases. In effect, if there is a dispute relating to a particular issue due to which additions are made to an assessee’s income chargeable to tax under the tax laws, the department is at liberty to pursue future cases.

For instance, if a dispute involving a question of law has been settled under the Vivad Se Vishwas scheme, the fact that the dispute has been settled can’t be used in pending cases in appeal. In essence, it can’t be argued in the future that the Income Tax Department has accepted the question of law relating to the issues in disputes settled through Vivad Se Vishwas.

TDS disputes

Disputes related to tax deducted at source (TDS) have many dimensions. If a tax deductor doesn’t deposit TDS, then the expense to which it relates is disallowed while calculating the income tax payable. There is also the possibility that the deductee might have to pay interest for short payment of tax if the deductor has not made the payment of TDS to the government. This is because the tax liability that has to be paid considers TDS paid, along with advance tax and self-assessment tax to compute the net tax liability. In case the deductor doesn’t pay the TDS, the deductee doesn’t get credit of that amount.

Now, if the deductor settles TDS disputes through Vivad Se Vishwas, then the deductor can claim the expense deduction in the year it was disallowed. Also, the deductee can claim credit of tax paid by the deductor in the year to which it pertains. This credit will only be applicable on the date on which settlement is done.

Also, interest cost pertaining to the above can be settled under the scheme. There are two types of interest costs here. One is the interest on delayed remittance of TDS to the government by the tax deductor, and the other is interest on short payment of tax for the deducteee because the TDS wasn’t remitted to the government by the deductor.

Settlement amounts

Upto March 31, 2020 - settlement amount is 100 per cent of disputed tax

From April 1, 2020 - settlement amount is 110 per cent of disputed tax

For interest, fee and penalty disputes, settlement amount is 25 per cent (upto March 31) or 30 per cent (from April 1)

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