Finance minister Nirmala Sitharaman on Wednesday introduced a Bill in the Lok Sabha to give effect to the Budget announcement to resolve direct tax disputes involving an aggregate Rs 9.32 trillion as on November 30, 2019.
The Direct Tax Vivad se Vishwas Bill, 2020, offers waiver of interest, penalty and prosecution for settlement of these disputes. They will have to be pending before the commissioner (appeals), Income Tax Appellate Tribunals (ITATs), high courts or the Supreme Court as on January 31, 2020.
While a complete waiver of interest and penalty will be given in case of payment made by March 31, an additional 10 per cent of the disputed amount will have to be paid after that. The scheme will apply to cases irrespective of whether 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 or fee. In fact, the appeal may even be against tax determined on defaults in respect to tax deducted or collected at source.
In case of tax arrears pertaining to only disputed interest or penalty, 25 per cent of the disputed penalty or interest will need to be paid while settling appeals up to March 31. It will be 30 per cent if the payment is made after that.
The Budget scaled down the direct tax collection target to Rs 11.7 trillion in the revised estimates for FY20 from Rs 13.35 trillion given in the Budget estimates. Even this would require a 2.9 per cent growth year-on-year.
Introducing the Bill, Sitharaman said the scheme will reduce litigation expenditure for the government and may help in generating some revenue. She added that the Bill emphasises on trust building and provides a formula-based solution without any discrimination.
In her Budget speech on February 1, Sitharaman had announced a scheme to resolve 483,000 direct tax disputes pending in various tribunals.
Sitharaman had similarly announced the scheme – Sabka Vishwas Scheme – in her first Budget last year to reduce litigation in indirect taxes. It resulted in settling over 1,89,000 cases.
Preparing groundwork for the direct tax resolution scheme, the Central Board Of Direct Taxes (CBDT) asked its offices across the country to provide data on pending appeals in high courts by next week.
“In order to implement the scheme, the CBDT needs database on such litigations pending at the high court level,” the communication to the commissioners read.
It is, therefore, requested that data on pending appeals at high courts, as on January 31, 2020, be obtained with the help of the court registry.
The amount of Rs 0.32 trillion in tax disputes as on November 30, 2019 (cited above), almost equals direct tax collections of Rs 11.37 trillion in 2018-19.
The Bill says that tax disputes consume copious amounts of time, energy and resources both on the part of the government as well as taxpayers and deprives the government of timely collection of revenue. “Therefore, there is an urgent need to provide for resolution of pending tax disputes. This will not only benefit the government by generating timely revenue but also the taxpayers. They will be able to deploy time, energy and resources saved by opting for such dispute resolution towards their business activities.”
The scheme will not apply to prosecution cases under the Indian Penal Code (IPC), the Prevention of Money Laundering Act (PMLA) and the Prohibition of Benami Property Transactions Act.
Besides, the disputed tax amount should not relate to undisclosed foreign income, assets, assessment or reassessment.
Rakesh Nangia, chairman, Nangia Andersen Consulting, said it can be a beneficial scheme for settlement of cases such as addition of unexplained cash deposited during demonetisation.
He added, “It would be beneficial to such taxpayers, to pay the tax amount and settle the disputes without imposition of interest and penalty.”
Neeru Ahuja, partner, Deloitte India, said that the timelines seem quite sharp and the workings will need to be done at the earliest to meet the March 31 deadline.
Amit Maheshwari, managing partner, Ashok Maheshwary & Associates, said the order passed by the designated authority determining the amount payable will be final. No further recourse in terms of appeals, arbitration, mediation or conciliation will be available to the taxpayer.
Congress MP Shashi Tharoor said the Bill violates the principle of equality by equally treating honest and dishonest tax payers.