The government has introduced a bill in Parliament detailing the Direct tax dispute settlement scheme. The Direct Tax Vivad se Vishwas Bill, 2020 for dispute resolution related to direct taxes, proposes less payment or discounted payment for dispute settlement if the tax payer settles before the end of this financial year as compared to if he/she decides to settle and pay under the scheme after March 31, 2020 but before the last date of the scheme.

The bill introduced in the Parliament says that the last date of the scheme is to be notified by the government. However, Finance Minister Nirmala Sitharaman in her budget speech said that the last date of the scheme is June 30, 2020. This early bird discount may well be offered in order to boost tax collections in the current fiscal.

Who can avail this scheme?

As per the bill, the scheme is applicable to: the appeals filed by taxpayers or the Government, which are pending with the Commissioner (Appeals), Income tax Appellate Tribunal, High Court or Supreme Court as on the 31st day of January, 2020 irrespective of whether tax demand in such cases is pending or has been paid; The pending appeal may be against disputed tax, interest or penalty in relation to an assessment or reassessment order or against disputed interest, disputed fees where there is no disputed tax. Further, the appeal may also be against the tax determined on defaults in respect of tax deducted at source (TDS) or tax collected at source (TCS).

Amount to be paid

As announced in the budget speech, a taxpayer who has a dispute with the income tax department can pay:

A) Where the tax arrears is reason of dispute

“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) disputed fee,

as determined under the provisions of the Income-tax Act;

According to the bill, where the ‘tax arrears’ is the aggregate amount of ‘disputed tax, interest chargeable or charged on such disputed tax and penalty leviable or levied on such disputed tax’, then in such a case ‘amount of the disputed tax’ has to be paid before March 31, 2020.

If the taxpayer avails this scheme on or after April 1, 2020, then along with the ‘amount of tax disputed’, additional 10 percent of the disputed tax will have to be paid. However, if the 10 percent of the disputed tax exceeds the aggregate amount of interest chargeable or charged on such disputed tax and penalty leviable or levied on such disputed tax, the excess shall be ignored for the purpose of computation.

More clarify with the example as follows:

On or before 31st March 2020

In following example if the assessee have the tax arrears of an total amount Rs. 1,40,00,000 /- , then by the payment of 50,00,000/- on or before 31st March 2020 assessee can settle their case.

Sr.no Amount Particular of Demand Settlement amount need to be pay
1 50,00,000 Disputed tax 50,00,000
2 15,00,000 Interest Chargeable Waive off
3 75,00,000 Penallty imposed Waive off

on the same above example if assessee choose to paid between 1st April 2020 to 30th June 2020

Sr.no Amount Particular of Demand Settlement amount need to be pay
1 50,00,000 Disputed tax 50,00,000 + 10 % extra
2 15,00,000 Interest Chargeable Waive
3 75,00,000 Penallty imposed waive

Note : However, if the 10 percent of the disputed tax exceeds the aggregate amount of interest chargeable or charged on such disputed tax and penalty leviable or levied on such disputed tax, the excess shall be ignored for the purpose of computation.

B) Where the dispute is related to interest or penalty amount

In case a dispute with the income tax department is due to disputed interest or disputed penalty or disputed fee, then before March 31, 2020, a taxpayer is required to 25 per cent of the disputed interest or disputed penalty or disputed fee.

A taxpayer availing the benefit on or after April 1, 2020 will get 30 per cent of the disputed interest or disputed penalty or disputed fee will be payable.

On or before 31st March 2020

In following example if the assessee have the Interest and Penalty o/s of an total amount Rs. 1,00,00,000 /- , then by the payment of 25,00,000/- o or before 31st March 2020 assessee can settle there case.

Sr.no Amount Particular of Demand Settlement amount need to be pay
1 25,00,000 Interest Chargeable 25 % need to be pay that amount will be 625,000
3 75,00,000 Penallty imposed 25 % need to be pay that amount will be 18,75,000

on the same above example if assessee choose to paid between 1s April 2020 to 30th June 2020

Sr.no Amount Particular of Demand Settlement amount need to be pay
2 25,00,000 Interest Chargeable 30 % need to be pay that amount will be 750,000
3 75,00,000 Penallty imposed 25 % need to be pay that amount will be 22,50,000

How the scheme will work

According to the bill containing scheme details, the designated authority, within a period of 15 days from the date of receipt of the declaration will determine the amount payable by the declarant (taxpayer) in accordance with the provisions of this Act (the scheme) and grant a certificate to the declarant containing particulars of the tax arrears and the amount payable after such determination, in such form as may be prescribed.

The taxpayer would be required to pay the amount determined by the designated authority (mentioned above) within 15 days of the date of receipt of the certificate and intimate the details of such payment to the designated authority in the prescribed form and there upon the designated authority shall pass an order stating that the declarant has paid the amount.

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 Income-tax Act in respect of tax arrears.

Who cannot avail the scheme?

(a) in respect of tax arrear,—

(i) relating to an assessment year in respect of which an assessment has been made under section 153A or section 153C of the Income-tax Act, if it relates to any tax arrear;

(ii) relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration;

(iii) relating to any undisclosed income from a source located outside India or undisclosed asset located outside India;

(iv) relating to an assessment or reassessment made on the basis of information received under an agreement referred to in section 90 or section 90A of the Income-tax Act, if it relates to any tax arrear;

(v) relating to an appeal before the Commissioner (Appeals) in respect of which notice of enhancement under section 251 of the Income-tax Act has been issued on or before the specified date;

(b) to any person in respect of whom an order of detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 on or before the filing of declaration:

Provided that—

(i) such order of detention, being an order to which the provisions of section 9 or section 12A of the said Act do not apply, has not been revoked on the report of the Advisory Board under section 8 of the said Act or before the receipt of the report of the Advisory Board; or

(ii) such order of detention, being an order to which the provisions of section 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under sub-section (3) of section 9, or on the report of the Advisory Board under section 8, read with sub-section (2) of section 9, of the said Act; or

(iii) such order of detention, being an order to which the provisions of section 12A of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under sub-section (3) of that section, or on the basis of the report of the Advisory Board under section 8, read with sub-section (6) of section 12A, of the said Act; or

(iv) such order of detention has not been set aside by a court of competent jurisdiction;

(c) to any person in respect of whom prosecution for any offence punishable under the provisions of the Indian Penal Code, 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 or for the purpose of enforcement of any civil liability has been instituted on or before the filing of the declaration or such person has been convicted of any such offence punishable under any of those Acts;

(d) to any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 on or before the filing of declaration Overall , seems a good scheme it is very interesting to see how market and industry react on that scheme , in these days government and industry both have shortage of funds ; in these scheme majority of the case will fall who already submitted the Dispute tax amount as already paid under Protest , where the industry do not want any further litigation on that they might quit and will adopt the scheme, but that exercise will not generate the new funds ,following are the positives and Negatives of the scheme

Positives of the scheme :

1. if government able to generate new funds from the scheme then that will be a great success for them.

2. Expecting litigation will reduce Currently, there are 4.83 lakh direct tax cases pending in various appellate forums — Commissioner (Appeals), Income Tax Appellate Tribunal (ITAT), High Court and Supreme Court.

3. Fresh funds will help the Government to complete their yearly collection charges.

4. Government sell this scheme on a very high rate, so from department point of view a good chance for deliver.

Negatives of the scheme

1. Government should not exclude the search cases assessment held under section 153A or section 153C of the Income-tax Act, and Prosecution cases from the scheme , by excluding of both the categories it will keep one part of the cases away from that scheme, if both the categories included in the scheme it will generate huge funds for the Government and it will also increase the success rate of the scheme.

2. Department should give some discount on the disputed tax amount to attract more cases toward the scheme.

Overall a good scheme but the point of view of the department to settle those cases where the chances of the department win are 50 % or less then that percentage , as on date government are not in a mood to settle or drop those cases where they think there will be a high percentage of there chances to win in the future ,so seems a sole objective of this scheme settle only to meet the shortfall targets.

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