Direct Tax Vivad Se Vishwas Scheme! Policy and Challenges!

Direct Tax Vivad Se Vishwas Scheme! Policy and Challenges!

1. Direct Tax Vivad Se Vishwas Scheme (VSV)

1.1 Whether VSV is notified?

The Vivad Se Vishwas Bill, 2020 (now VSV Act) has been passed by the Lok Sabha on 4th March 2020 and by the Rajya Sabha on 13th March 2020. Further, the assent of the Hon’ble President of India has received on 17th March 2020.

Now, the VSV Act is also notified. Below are the dates of various instances

• Passed by Lok Sabha → 04.03.2020
• Passed by Rajya Sabha→ 13.03.2020
• Assent of Hon’ble President→ 17.03.2020

However, due to the Coronavirus epidemic, how many people will be able to file the application for pending cases is uncertain. Additionally, due to the Coronavirus outbreak, CBDT has extended the date of the first phase from 31.03.2020 to 30.06.2020. Thus, now declaration and payment under the scheme can be made up to 30.06.2020 without additional payment. 

However, still, the response to the scheme could be uncertain due to cash crunch. Thus, the Government should, on the sou-moto basis, look into the same and allow to pay the amount under the scheme in instalments or up to 31st December 2020. It may be noted that even the date of payment of the SVLDR Scheme (which was introduced for Service Tax and Excise) is extended up to 30th June 2020.

1.2 Why VSV is needed under Direct Tax?

Pending legacy Direct tax litigation is one of the biggest cause of concern not only for Government but also for taxpayers as most of it comprised of frivolous cases.

Legacy litigation has drawn a lot of attention, as more than 4.83 lacs cases are pending before Commissioner (Appeals), CESTAT, High Court and Apex Court.

The Hon’ble FM mentioned in her Budget 2019 Speech as under:

“126. No Dispute but Trust Scheme – ‘Vivad Se Vishwas’ Scheme

• Sir, in the past our government has taken several measures to reduce tax litigations. In the last budget, Sabka Vishwas Scheme was brought in to reduce litigation in indirect taxes. It resulted in settling over 1,89,000 cases. Currently, there are 4,83,000 direct tax cases pending in various appellate forums i.e. Commissioner (Appeals), ITAT, High Court and Supreme Court. This year, I propose to bring a scheme similar to the indirect tax Sabka Vishwas for reducing litigations even in the direct taxes.

• Under the proposed ‘Vivad Se Vishwas’ scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get a complete waiver of interest and penalty provided he pays by 31st March 2020. Those who avail of this scheme after 31st March 2020 will have to pay some additional amount. The scheme will remain open till 30th June 2020.

• Taxpayers in whose cases appeals are pending at any level can benefit from this scheme.

• I hope that taxpayers will make use of this opportunity to get relief from the vexatious litigation process.”

Even as per Statement of Objects and Reasons of The Direct Tax Vivad Se Vishwas Bill, 2020 specifies as under :

“Over the years, the pendency of appeals filed by taxpayers as well as Government has increased due to the fact that the number of appeals that are filed is much higher than the number of appeals that are disposed of. As a result, a huge amount of disputed tax arrears is locked up in these appeals. As of the 30th of November, 2019, the amount of disputed direct tax arrears is Rs. 9.32 lakh crores. Considering that the actual direct tax collection in the financial year 2018-19 was Rs.11.37 lakh crores, the disputed tax arrears constitute nearly one-year direct tax collection.

2. Tax disputes consume copious amounts of time, energy, and resources both on the part of the Government as well as taxpayers. Moreover, they also deprive the Government of the timely collection of revenue. Therefore, there is an urgent need to provide for the resolution of pending tax disputes. This will not only benefit the Government by generating timely revenue but also the taxpayers who will be able to deploy the time, energy, and resources saved by opting for such dispute resolution towards their business activities.

1.3 How many Sections are there in the VSV Act?

VSV Act is an eight pager Act containing 12 Sections as discussed below:

1.4 What are the dates of the scheme?

VSV scheme will end on 30th June 2020.

1.5 Which are the enactments covered under VSV ACT, 2020?

The VSV Act covers the specified litigation under the Income Tax Act, 1961. In this regard, the below question from Circular No. 7/2020 dated 4th March 2020 can be referred to

Que-18. Are disputes relating to wealth tax, security transaction tax, commodity transaction tax, and equalization levy covered?

Ans No. Only disputes relating to income-tax are covered.

1.6 What is the covered under VSV Act?

VSV is available for the ‘tax arrears’ as determined under Income Tax Act, 1961. In this regard, Section 2(1)(o) of VSV defines the term tax arrears means:

(i) the aggregate amount of disputed tax, interest chargeable or charged on such disputed tax, and penalty leviable or levied on such disputed tax; or

(ii) disputed interest; or

(iii) disputed penalty; or

(iv) disputed fee

1.7 Who can apply under VSV

As per Section 2(1) of the VSV Act, the persons given below can apply for VSV:

1.8 What is the meaning of tax arrears

Section 2(o) of the VSV Act defines ‘tax arrears’ as given hereunder “tax arrear” means,—

i. the aggregate amount of disputed tax, interest chargeable or charged on such disputed tax, and penalty leviable or levied on such disputed tax, or

ii. disputed interest; or

iii. disputed penalty; or

iv. a disputed fee as determined under the provisions of the Income-tax Act;

(2) The words and expressions used herein and not defined but defined in the Income-tax Act shall have the meanings respectively assigned to them in that Act.

Thus the term tax arrear is the aggregate of disputed tax, the interest charged or chargeable, and penalty levied and leviable thereon.

Additionally, only disputed interest; or disputed penalty; or disputed fee as per the income tax act is termed as tax arrear.

1.9 What is the meaning of disputed tax, interest, penalty, and fee?

The term ‘tax arrears’ as defined under Section 2(1)(o) of the VSV Act is an aggregate of disputed tax, disputed interest, disputed penalty, and disputed fee. In this regard, a table given below describes the meaning of these terms.

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