Direct tax immunity scheme likely in Budget as govt looks for funds

Proposal will allow assessees to revise declared income without fear of past cases being opened up, or prosecution

The government, which is hard-pressed for revenue, may come up with an immunity scheme for direct taxes in the upcoming Budget, which will allow assessees to declare the additional income of the previous five-six years without penalty or prosecution. 

The proposal, being examined, will allow assessees to revise declared income with no fear of past cases being opened up, or prosecution. It will help improve compliance, besides raking in revenues for the government. 

The government projects earning at least Rs 50,000 crore in the first year of implementation itself. It was recommended by the direct tax taskforce, led by former Central Board of Direct Taxes member Akhilesh Ranjan. “People who want to declare more income from the previous year do not do so because the moment they do, they are taken up for scrutiny, investigation, and prosecution, and penalties are imposed upon them,” said an official. 

“Recommendations made by the direct tax panel are being seriously considered,” he added.

Direct tax collection is facing a severe shortfall in the current fiscal year. After refunds, it saw a growth rate of 0.7 per cent till December 15, against the Budget target of 17.3 per cent, which would have resulted in Rs 13.35 trillion. 

Advance tax collection after the third instalment stood at Rs 2.51 trillion, compared with Rs 2.47 trillion in the corresponding period last year, posing 1.6 per cent growth.

“The move is expected to prevent litigation also. The department ends up spending a large sum on litigation, but wins just about 20 per cent of the cases it fights,” said an official. About 500,000 cases are pending in courts and quasi-judicial fora, with Rs 7-8 trillion being in dispute. Rakesh Nangia, chairman, Nangia Anderson Consulting, said that in a majority of these tax disputes, the income tax (I-T) department was the appellant/petitioner and such a scheme would not only result in additional revenue generation, but will also reduce pending litigation. 

“This will generate a positive sentiment in the business community as a whole and also send a healthy message to foreign investors,” he added.

In August last year, the government increased thresholds for tax litigation, below which the I-T department was directed not file appeals and withdraw cases that related to the ones under those. The limits were revised from Rs 20 lakh to Rs 50 lakh for appeals before the tribunal, from Rs 50 lakh to Rs 1 crore for appeals before high courts, and from Rs 1 crore to Rs 2 crore for appeals before the Supreme Court. A large number of pending appeals have been withdrawn/dismissed, following the order.

The success of amnesty schemes for indirect tax has also been an encouraging factor, which has helped the Central Board of Indirect Taxes and Customs to gather an additional Rs 30,000-35,000 crore so far.  The Sabka Vishwas (Legacy Dispute Resolution) Scheme was launched in September last year and it covers disputes and liabilities relating to excise and service tax enactments.

Experts said an amnesty scheme for direct tax could be considered by the government on the back of the indirect tax legacy dispute scheme. “If the direct tax resolution scheme is on similar lines, whereby interest and penalty are waived and 50 per cent of the tax in dispute is to be paid, it could see a positive response from taxpayers,” said Sudhir Kapadia, partner & national tax leader, EY. 

The tax administration reform commission, headed by Parthasarathi Shome, had recommended introducing arbitration and conciliation in the I-T Act. The SC in a recent judgment (M R Krishnamurthy vs New India Assurance Company, March 2019) had nudged the government to consider introducing a separate Indian Mediation Act to deal with civil disputes, including those related to taxation.

India has rejected arbitration for resolving international tax disputes in G20 discussions. “There appears to be a good scope of exploring conciliation or mediation as a proactive way for settling disputes at the assessment stage itself, thus, unclogging revenues as well as litigation in the tax administration,” said Girish Vanvari, founder, Transaction Square, a consultancy firm.