Finance Minister Nirmala Sitharaman announced the Vivad se Vishwas scheme to “provide for resolution of pending direct tax disputes” in her Budget 2020 speech. This scheme was brought about after the success of the “Sabka Vishwas Scheme” which was introduced to reduce indirect tax disputes. The Cabinet approved amendments related to Vivad se Vishwas on February 12, 2020 which gave more clarity on what the scheme entails.
Who does the scheme apply to?
The Vivad se Vishwas scheme shall apply to all the appeals filed by declarants or the Government, which are pending with the Commissioner (Appeals), DRP, Income-tax Appellate Tribunal, High Court or Supreme Court and revision cases that are pending before the CIT as on the January 31, 2020 or where orders where time limit for filing appeal has not expired as on January 31, and all search cases where the disputed demand is less than Rs 5 crore. A declaration will have to be filed by the declarant before the authority in order to opt for this scheme.
Exclusions
- Cases related to search or seizure;
- Cases where the prosecution has been instituted on or before the date of filing of declaration;
- Cases related to any undisclosed foreign income or assets;
- Cases which are completed based on information received as a result of exchange of information with other tax jurisdictions
- Cases where the CIT (Appeals) has issued a notice of enhancement;
- Cases in which an order of detention has been made or prosecution has been instituted/ conviction has been made under specified Acts or notification has been made under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.
Other than these cases, the scheme is applicable to all pending litigation.
What is the payment schedule?
Particulars | Tax payable till March 31, 2020 | Amount payable w.e.f. April 1, 2020 but before the last date | |||
Appeal filed by | Disputed amount | Search cases | Other cases | Search cases | Other cases |
Taxpayer | Tax* | 100%+25% = 125% of disputed tax | 100% of disputed tax | 100% + 35% = 135% of disputed tax | 100% + 10% = 110% of disputed tax |
Taxpayer | Interest and penalty | — | 25% of disputed interest and penalty# | — | 30% of disputed interest and penalty# |
Tax Department or where I-T department has lost case | Tax* | 50% + 12.5% = 62.5% of disputed tax | 50% of disputed tax | 55% + 12.5% = 67.5% of disputed tax | 55% of disputed tax |
Tax Department or where I-T department has lost case | Interest and penalty | — | 12.5% of disputed interest and penalty# | — | 15% of disputed interest and penalty# |
* Penalty and Interest will be waived.
# Rest will be waived off.
Key Points to Remember
- Declarations cannot be filed according to issues
- The amended scheme has given two options to the taxpayer. Either to pay notional tax on the disputed amount and benefit from claimed losses and/or accept the reduced losses and pay nothing after accepting the additions and settle the penalty. This is a favorable option for taxpayers that are facing huge losses and plan to shut down their businesses.
- The Government has still kept the secondary adjustment options intact despite providing a window to the declarant to settle the transfer pricing disputes under the scheme. Therefore, the declarant will need to repatriate funds to India even if he goes for settlement under the scheme.
Taxpayers will be required to submit the proof of withdrawal of appeal/writ with the intimation of payment, i.e., before the final certificate/order was issued for settling the dispute. Post the final order, the taxpayer cannot make use of any further recourse on the matter. The Vivad se Vishwas scheme introduced in Union Budget 2020 is a welcome move by the government as it is expected that this will contribute in reducing tax litigations.
