Budget proposes 'Vivad se Vishwas' scheme to cut down direct tax litigation

After the success of a scheme to resolve indirect-tax disputes, the government has announced a similar programme to settle litigation in direct taxes where interest and penalties of taxpayers will be waived if they pay up before March-end. Under the tax dispute settlement scheme, Vivaad se Vishwas (from dispute to trust), any company that has legacy tax issues just needs to pay the tax demanded. An estimated 500,000 cases, with a total tax demand of about Rs 8 lakh crore, pending in courts and quasi-judicial forums for years. It would take a long while before the tax department gets the money — that is if it eventually win the cases.

Under the proposed scheme, a taxpayer who pays the disputed taxes before March 31, 2020, would get complete waiver of interest and penalty. The scheme will remain open till June 30, 2020, and those who avail of it after March 31 will have to pay some additional amount. ET on January 4 reported that budget could introduce a direct-tax dispute settlement scheme and the government could collect as much as Rs 50,000 crore through it.

The scheme will cover all tax litigation, including those against individuals, said experts. “Many companies and individuals who are facing litigation will use the new scheme to settle the cases. The government will be able to monetise a chunk of money that is currently stuck in litigation over the years as in several cases the interest and penalty come to more than 100% of the tax demand,” said Girish Vanvari, the founder of tax advisory firm Transaction Square.


Industry trackers said several companies had already started reaching out to their tax advisers and lawyers to check if they could take advantage of the scheme. This could also be a big draw for the multinationals that could resolve some legacy tax issues.

A government task force had recommended the litigation settlement scheme in July last year. The Central Board of Direct Taxes had in February last year set up a panel to help reduce tax litigation. This could be one of the ways the government could look to address the fiscal deficit, said experts. The fiscal deficit was Rs 8.07 lakh crore at the end of November last year, 13% above the fullyear target, as per the Controller General of Accounts.

“Dispute resolution by paying up disputed taxes, option to choose a tax rate structure depending upon individual cir-cumstances are all steps in the right direction,” said Shailesh Haribhakti, chairman, Desai Haribhakti Group.