Newsflash on Reducing Direct Tax Exposure & Litigation - Vivad Se Vishwas Scheme, 2020

The government has brought in tax litigation settlement scheme for direct tax matters referred to as “The Direct Tax Vivad Se Vishwas Act, 2020 (VSV Scheme)”. Due to Covid-19, the initial window for making application has been extended from 31 March 2020 to 30 June 2020 and it may be prudent for businesses to analyse  the VSV scheme and thereafter make informed decision on whether to opt for the scheme to settle their pending tax litigation matters.

India has a huge tax litigation due to inherent complexity, high pitched assessments, long time for litigation resolution and absence of effective resolution mechanism in case of disputes. As at 30 November 2019, 4.83 lakh direct tax disputes were pending at various courts and appellate forums like CIT(A), ITAT, High Court and Supreme Court involving a whooping Rs. 9.32 lakh crores (US$ 130 billion) in tax arrears. In this regard, the VSV Scheme provide for resolutions of disputed tax and for matters connected therewith or incidental thereto. The Scheme (VSV Act, Rules, FAQs) lay down the coverage, relief and mechanism.

The Scheme provides for resolution of disputes wherein an appellant would be required to pay only the amount of the disputed taxes and will get complete waiver of interest & penalty and immunity from proceedings for prosecution for an offence provided he pays the required amount by 30 June 2020 (extended from 31 March 2020 considering the Covid19 crisis). It also covers matters, where the disputed tax relates to penalties and interest. Those who avail this scheme after 30 June 2020 will have to pay some additional amount. The last date of scheme is yet not notified.

In this newsflash, we have tried to provide an overview of the scheme, which would be helpful towards understanding and determining the way forward for settlement of pending litigation. Of course, each case needs to be examined based on its own merits and implications and as such, is subject to detailed analysis.

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