In line with the announcement by the Government while presenting the Union Budget 2020, with an aim to reduce tax disputes the Direct Tax Vivad Se Vishwas Act, 2020 ('VSV Scheme' or the 'Scheme') has been enacted on 17 March 2020. The Scheme provides a short window for taxpayers to settle their tax disputes by partly paying their tax arrears. To address queries of stakeholders and provide guidance about the law, the Central Board of Direct Taxes (CBDT) also issued FAQs in clarificatory Circular No. 7 of 2020.
We, at BDO in India, have analyzed and summarized the key provisions of this new legislature:
What is the Scheme?
The Scheme provides an option for the taxpayers to settle their tax disputes under the Indian Income Tax Act, 1961 (IT Act) by paying a portion of tax arrears.
Which tax disputes are covered by the Scheme?
- The appeals (whether filed by the taxpayer or the Revenue
Authority) pending as on 31 January 2020, before any of the
following appellate forum:
- Supreme Court; or
- High Courts; or
- Income Tax Appellant Tribunals ('ITAT'); or
- First Appellate Authority.
- Order has been passed by tax officer or appellate authorities or the High court but the time limit for filing appeal has not expired as on 31 January 2020;
- Cases pending before the Dispute Resolution Panel (DRP) as on 31 January 2020; or the DRP has issued direction(s) but the tax officer has not passed final order as on 31 January 2020;
- Revision petition filed before the Commissioner under section 264 of the IT Act is pending as on 31 January 2020;
Which tax disputes are excluded from the Scheme?
- Disputes not covered above;
- Search cases where disputed tax amount exceeds INR 5 crore;
- Cases where prosecution has been initiated;
- Cases involving undisclosed income from a source outside India or undisclosed asset located outside India;
- Cases of tax disputes pursuant to assessment or reassessment made on the basis of information received under tax treaties or information exchange agreements;
Who cannot take benefit under the Scheme?
- Persons against whom an order of detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (certain exceptions prescribed);
- Persons prosecuted or convicted for any offence punishable under the provisions of the Unlawful Activities (Prevention) Act, 1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Prevention of Corruption Act, 1988, the Prevention of Money Laundering Act, 2002, the Prohibition of Benami Property Transactions Act, 1988;
- Persons against whom prosecution has been initiated by revenue authorities for any offence punishable under the provisions of the Indian Penal Code, or for the purpose of enforcement of any civil liability under any law;
- Persons notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.
Which tax arrears can be settled under the Scheme?
The following tax arrears as determined under the provisions of the IT Act could be settled under the Scheme:
- The aggregate amount of
- Disputed tax,
- Interest chargeable or charged on such disputed tax and
- Penalty leviable or levied on such disputed tax; or
- Disputed Interest; or
- Disputed Penalty; or
- Disputed Fee
How is the Disputed tax determined in certain circumstances?
Status of case as on 31 January 2020
Tax payable in accordance with such order
Tax payable after giving effect to the order so passed
Tax payable, if DRP was to confirm the proposed variation in the draft order
Tax payable as per the final order to be passed by the tax officer
Tax payable if such revision application was not to be accepted
Tax payable if such appeal / writ / SLP is decided against the taxpayer
Disputed tax computed is to be increased by the amount of tax pertaining to issues for which such notice has been issued
*Tax is inclusive of surcharge and education cess
How does the Scheme work?
- A taxpayer eligible and desirous to settle tax arrears under the Scheme, is required to file a declaration before the Designated Authority (i.e. Commissioner of Income-tax).
- Upon filing of such declaration, the taxpayer should withdraw the relevant appeal filed before the appellate forum. If the same pertains to appeal filed by the Tax Department, the same shall be deemed to have been withdrawn.
- Within 15 days of receipt of the declaration, the Designated Authority shall compute tax arrears payable, in following manner and grant a certificate containing the particulars of the tax arrear and the amount payable.
|Particulars||Payable up to 31 March 2020**||Payable from 1 April 2020 up to the last date to be notified **|
Cases involving disputed tax, interest and penalty
|1. All eligible cases (except search cases)||100 % of the disputed tax||110% of the disputed tax|
|2. Search cases||125 % of the disputed tax||135 % of the disputed tax|
|Cases involving disputed penalty or interest or fee||25% of disputed penalty or interest or fee||30% of disputed penalty or interest or fee|
** In the following cases, only 50% of the disputed tax/interest/penalty/fine as calculated above would be payable:
- The taxpayer shall pay the amount within 15 days from the date of receipt of the certificate and intimate the details of such payment to the Designated Authority.
- Once the taxpayer has paid the above tax arrears, the Designated Authority shall pass an order confirming the payment of tax arrears.
- No further tax, interest or penalty is payable by the taxpayer on the tax disputes so settled.
- If any proceeding for arbitration, conciliation or mediation have been initiated by the Taxpayer, or any notice thereof has been given by the Taxpayer under any law or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise, the Taxpayer shall withdraw the claim. The proof of such withdrawal shall be submitted along with intimation of payment i.e. after issuance of certificate by the Designated Authority containing particulars of the tax arrear and the amount payable.
- No appellate forum or arbitrator, conciliator or mediator shall proceed to decide any issue relating to the tax arrear mentioned in the declaration in respect of which an order has been made by the Designated Authority or the payment of sum determined under that section.
- Every such order passed shall be conclusive and no matter covered by such order shall be reopened in any other proceedings under the IT Act or any other law.
- The Designated Authority shall not institute any proceeding in respect of an offence or impose or levy any penalty or charge any interest under the IT Act in respect of tax arrears.
What will happen to credit for Minimum Alternate Tax (MAT) and loss or depreciation carried forward?
Where the dispute pertains to either reduction of MAT credit or any loss or depreciation, the taxpayer have an option to either:
- include the amount of tax related to such tax credit or loss or depreciation in the amount of disputed tax; or
- carry forward the reduced tax credit or loss or depreciation in prescribed manner.
What will happen to recurring issues?
Declaration made under this Scheme shall not set any precedence for any proceedings and neither the Revenue Authority nor the taxpayer can claim in any other proceeding that they had conceded their tax position by settling the dispute.
In what circumstances the benefit under this Scheme could be withdrawn?
The proceedings / claims withdrawn shall be deemed to have revived in case where:
- incorrect material particulars furnished in declaration;
- taxpayer violates any of the conditions referred in this Act;
- acts in manner not in accordance with the undertaking given by him.
What is the last date for availing settling disputes under the Scheme?
The FM in the budget speech announced that the scheme would remain open till 30 June 2020, however, the same is yet to be notified.
While the CBDT has come out with clarification / answers to the queries raised by stakeholders, more clarity is required on computation of tax arrears in certain cases of enhancements, pending rectifications, etc. The delay in enactment of the law and notifying Rules/ Forms have allowed a very short window for taxpayers to settle their disputes under this Scheme, without paying 10 percent interest. The statutorily available time limit for making payment of disputed tax itself may not be exhausted. While it is expected that proceeding under this Scheme would be online, with such short window for filing declaration, many taxpayers could miss the deadline of 31 March 2020. Hence, an extended timeline for settling disputes beyond 31 March 2020 without paying 10% interest would attract more taxpayers to opt for the VSV Scheme.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.