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Vivad se Vishwas Scheme

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Vivad se Vishwas Scheme

Ever since the Union Budget 2020 was announced, everyone had questions on what is the ‘Vivad Se Vishwas’ scheme? It is an effort by the Government of India (GOI) to bring an end to the pending direct tax conflicts. It is a direct tax arrangement proposed to solve tax conflicts between persons and the department of income tax. Earlier, the scheme gave taxpayers a complete waiver of interest and penalty with a full settlement of the dispute if the scheme had been in operation by 31st March 2020. An individual who opted to settle after March 31, 2020, was required to pay an additional 10 % penalty on the amount of tax in dispute. According to the Vivad se Vishwas Scheme income tax conflicts settled under the scheme, the income tax department or any other designated authority could not reopen these conflicts in some other proceeding.

Benefits of Vivad se Vishwas Scheme

  • Brings certainty: Regarding the probable result of the conflict.
  • Quick-relief: The settlement process should be completed within a month, taking the lengthy conflicts to an expeditious conclusion.
  • Tangible savings: The scheme allows for interest waiver, fines, and prosecution. Only partial sums need to be charged in lawsuits involving a fine, interest, or penalty. This will also affect the continuing litigation costs.
  • Flexibility: The scheme allows taxpayers the option of selecting the years of payment (even if the conflict is pending at the tax authorities' behest), without setting a precedent.
  • Focus on core activities: Relieves management from assigning time and resources to internal conflicts and encourages companies to concentrate on key strategic concerns.

Other than a waiver of interest and penalties, when the case is resolved under the scheme, the taxpayer shall also receive the following immunities:

  • Those instances can not be reopened by any tax authority or designated authority in any other proceeding;
  • When the dispute is settled, an appeals forum can issue an order on the subject;
  • Choosing for the scheme does not amount to granting the tax status, and the tax office can not say that the individual has consented to the challenged decision.

Checklist Eligibility for Vivad se Vishwas Scheme

The scheme extends to all appeals/petitions lodged by individuals or the taxation department outstanding on 31 January 2020, with the relevant forums:

  • Income-tax commissioner (appeals);
  • Income-tax appellate court;
  • Supreme tribunal or High court;

Further, the scheme also applies in situations where:

  • Not expiring the time limit for filing an appeal;
  • Cases pending before the Dispute Resolution Panel (DRP) or where instructions for DRP have been issued but the final assessment order is awaited;
  • Review petitions pending before the Income-Tax Commissioner; and
  • Search cases in which the demand at issue is less than Rs 5 crore.

Requirements applying for Vivad se Vishwas Scheme

  • The Vivad se Vishwas (VSV) Scheme form shall be submitted tax-year wise, i.e. one declaration for one tax year only. Separate declarations have to be filed for different tax years. The declarant must, therefore, decide in the form whether he/she wants to resolve his/her appeal or the appeal of the department, or both, for a given tax year.
  • When both the quantum appeal against the disputed tax and the appeal on the penalty imposed on that disputed tax for a tax year is pending, the taxpayer is expected to submit a declaration form addressing both the disputed tax appeal and the penalty appeal in question. However, he/she only has to pay a corresponding percentage of the disputed tax. Furthermore, it will not be feasible for the taxpayer to apply for the settlement of the penalty appeal only if the appeal relates to the disputed tax relating to that pending penalty.
  • Where only the notice to begin the proceedings has been given without prosecution, the taxpayer is entitled under the VSV scheme to file a declaration. However, where the prosecution has been initiated with regards to the tax year, the taxpayer is not entitled under the VSV scheme to file the declaration for that tax year unless the prosecution is compounded before filing the declaration.
  • Where the proposal for rectification is pending and such rectification that influences the decision of the disputed tax, the disputed tax will be determined after giving effect to the rectification order issued.
  • When the substantive addition is liable for protection under the VSV scheme, the tax officer shall send a rectification order on the settlement of the dispute relating to the substantive addition, withdrawing the defensive addition relating to the same issue.
  • Where the time limit for filing the appeal has not elapsed and the Appellate Authority has only provided relief on such cases, the taxpayer has the choice of resolving either his/her deemed appeal or the deemed appeal of the revenue authorities or both. Unless the taxpayer wants to resolve even his/her deemed appeal, the tax officer will instead be able to file an appeal on the issues of which the taxpayer has got relief, as set out in the current proceedings and the CBDT guidance.
  • If the taxpayer does not have an SC decision about a topic of his/her favour, there is no disagreement on the problem and so he/she does not need to resolve the question. If the problem is one of several problems, it is necessary to quantify the disputed tax on certain concerns considering nil tax in this case.
  • Within the VSV scheme, only the case within the review, on which the declaration is filed, shall be waived about interest and fine. Thus, the tax, interest, and penalty shall be payable for the undisputed issue

Why Was the Vivad Se Vishwas Scheme Launched?

The VSV scheme or the tax dispute settlement scheme has been launched to provide a tax dispute resolution to taxpayers. The tax dispute settlement scheme aims to reduce the number of pending tax disputes by providing taxpayers with an opportunity to settle their tax disputes with the government

  • The scheme is expected to provide a significant boost to the government's efforts to improve the ease of doing business in the country and to create a more investor-friendly environment
  • The scheme is applicable to both direct and indirect taxes and is open to all taxpayers, including individuals, companies, and partnerships
  • Under the scheme, taxpayers who have a tax dispute pending can pay the disputed tax amount and settle the dispute without having to pay any interest, penalty, or prosecution charges
  • The scheme is available for a limited period and is intended to encourage taxpayers to settle their tax disputes as soon as possible
  • The tax dispute resolution plan is intended to help taxpayers who are struggling financially and legally as a result of ongoing tax conflicts
  • The government has taken several measures to promote the scheme, including setting up a dedicated portal for taxpayers to file their declarations and making the process of settling tax disputes more transparent and streamlined.

Who Can Avail the Vivad Se Vishwas Scheme?

The VSV scheme can be availed by the following:

  • Taxpayers who have pending income tax appeals at any level, including the Hon’ble Supreme Court and Hon’ble High Courts
  • Taxpayers who have disputed income tax demand
  • Taxpayers who have failed to file an appeal against an income tax demand
  • Taxpayers who have time-barred income tax arrears.

However, there are certain exceptions, such as cases involving prosecution for offences under the Income Tax Act or cases under the Black Money Act.

FAQs on Vivad se Vishwas Scheme

  • About the tax year under assessment, the disputed tax is determined as per the VSV bill specified formula. The specified formula is income tax at the question. In compliance with the Minimum Alternative Tax (MAT) requirements, it shall also take into account disputed income. The formula for calculating the disputed tax, depending on the amount of tax payable, as if the issue was decided against the taxpayer.
  • If the dispute is about reducing the loss claimed or converting the loss into income, the disputed tax is calculated as though the disputed loss is income. This is supposed to be clarified by the law that under such a situation the taxpayer is either permitted to pay the disputed tax and to retain the option to pass the alleged loss, or to not pay the disputed tax and to forfeit the opportunity to pay the disputed loss.
  • The tax is therefore taken into consideration in keeping with the terms of the tax deduction at source/tax collection at source provisions (TDS/TCS).
In the context for paying disputed taxes, the CBDT made the following clarifications:
  • A deduction is valid for all taxes collected for the year against the amount of the disputed income;
  • In the case that the deductor settles TDS appeals:
  • a. The consequential impact in the event of dismissal under section 40(a)(i)(ii) is provided;
  • b. The deductor is entitled to a credit (as from the day the dispute was settled).
  • Search cases in which the tax amount disputed exceeds INR 5 crore. The INR 5 crore cap shall be extended every fiscal year;
  • Instances with which the prosecution has been commenced;
  • Cases of unrevealed revenue from a source outside India or unrevealed wealth outside India;
  • Cases of tax conflicts resulting from the appraisal, re-evaluation, or sharing of details based on information provided under tax agreements.
  • These tax disputes need to submit the Vivad se Vishwas scheme application form.
  • The order passed by the designated authority shall be decisive about the issues mentioned, and such issues can not be reopened by another proceeding.
  • Any prosecution shall be initiated by appointed jurisdiction about an offence, fine or interest.
  • If the order is passed by the designated authority, then the appeal arbitrator, mediator, or conciliator are not to decide the matter.

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