A real burden: Tax disputes worth trillions are choking India's growth

With ₹16 trillion locked in unresolved tax disputes, India must urgently reform its judicial and tax systems to clear backlogs and restore investor confidence in a rule-based economy

Across India’s high courts, tax disputes are alarmingly piling up. A recent analysis by the research organisation DAKSH, also reported by this newspaper, has found that over 12,000 tax cases (nearly 34 per cent) have been pending in high courts for more than a decade without a single hearing. The India Justice Report 2025 also painted a similar picture, noting that nearly half of all high court cases had been pending for over five years. Delays in tax litigation underline one of India’s most persistent structural bottlenecks that poses risks to revenue realisation, business sentiment, and the rule of law. 

The numbers are staggering. According to reports, there were about 539,000 appeals pending at the beginning of 2025-26, with ₹16.6 trillion in disputed tax claims. At tribunal level alone, ₹6.85 trillion in disputes is pending. These delays are not merely statistical. They expose deeper inefficiencies in how India manages its tax litigation. Many high courts often lack dedicated tax Benches. Frequent judge transfers and judicial vacancies further slow hearings. Even reforms meant to modernise the process, such as the faceless appeal system, launched in 2020, have run into problems. The consequences ripple through the economy. Pendency affects smaller businesses more, as pursuing cases entails costs and may also affect business prospects in terms of increased difficulty in raising credit.  Lengthy investigation and litigation could also sour the plans of foreign firms looking to invest in the fastest-growing large economy in the world. The speed of resolving these cases is just as crucial as ensuring fairness in the process, especially when trillions are locked up in litigation. 

A credible fix will require both institutional and procedural reform. First, expanding dedicated tax and commercial Benches within high courts, supported by trained judicial officers and domain experts, must be prioritised. This would require expansion in capacity in general. Otherwise, shifting human resources to dedicated tax or commercial Benches will affect progress in other cases. Second, the government should simplify and streamline the system below high courts to prevent unnecessary escalation. This would again mean more capacity at tribunal level. Third, a time-bound drive to clear decade-old cases must be institutionalised. Finally, it must be recognised that a lot of litigation emerges from the way the tax department engages with the taxpayer, often because of aggressive tax-collection targets. The income-tax law has been streamlined and will be implemented from the next financial year. 

It is hoped that the new law will bring more clarity and reduce differences between taxpayers and the tax department. Nevertheless, a lot will depend on how the tax department deals with potential disputes. This is not to suggest that tax evaders should be let off the hook, but genuine taxpayers often find themselves entangled in litigation and disputes. This must be avoided. Disputes worth over ₹16 trillion are not helping anyone and have only clogged the judicial system.  If unresolved disputes continue to mount, they could erode investor confidence. Clearing this backlog and ensuring that a similar situation is avoided in the future are no longer merely a matter of judicial housekeeping — it is an economic imperative for a country that aspires to be a predictable and rule-based investment destination.