Direct Tax Vivad se Vishwas Bill, 2020

Syllabus subtopic: Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.

Prelims and Mains focus: about the new scheme; its significance and benefits

News: The finance ministry unveiled details of a new scheme that could fetch the exchequer part of the Rs.9.32 trillion direct taxes under dispute and free up courts and tribunals crippled by prolonged litigation.

Background

A similar scheme announced last year to settle indirect tax disputes related to central excise duty, service tax and various cesses had collected more than Rs.39,000 crore.

Need for the scheme

Tax disputes consume copious amount of time, energy and resources both on the part of the government and taxpayers. Moreover, they also deprive the government of the timely collection of revenue.

About the proposed scheme

• The Direct Tax Vivad se Vishwas Bill, 2020, tabled in Parliament by finance minister, offers immunity from prosecution to those who sign up for the scheme, which opens on the date it is signed into law.

• The scheme offers companies a chance to pay disputed tax arrears without interest and penalty if paid before 31 March. If paid later, but before a due date to be announced later, the amount due will go up by 10%.

• In case the tax dispute is over penalty, interest or fee, the settlement amount payable is 25% of the dues if paid before the end of March.

• If paid subsequently, but before the date to be announced in due course, the payable amount would be 30% of the dues.

• The scheme, however, will not cover tax demands related to undisclosed foreign income or assets or tax demands raised after the government secured information from other countries.

• The proposed scheme is applicable to appeals filed by taxpayers or the government, which are pending before the commissioner (appeals), tribunals, high courts or the Supreme Court as on 31 January.

What does it signify for the govt.?

If the scheme is successful in collecting revenue, it will offer relief to the Modi administration, which has estimated that its fiscal deficit for FY20 would slip from the earlier projected 3.3% of GDP to 3.8% of GDP.

What are the likely benefits?

• This is an opportunity for assessees to clear long-pending disputes and many tax payers, especially those having small amounts under dispute, are likely to lap it up.

• This will not only benefit the government by generating timely revenue but also taxpayers who will be able to deploy the time, energy and resources saved by opting for such dispute resolution towards their business activities.

• The scheme can be beneficial for settling cases such as additions of unexplained cash deposited during the demonetization period and additions for penny stocks. It would be beneficial for such taxpayers to pay the tax amount and settle the disputes without imposition of interest and penalty.