‘Vivad se Vishwas’ scheme: Govt’s olive branch to taxpayers

The scheme provides once in a lifetime opportunity to settle direct tax litigation disputes currently pending in courts without paying any interest or penalty.

Union Finance Minister Nirmala Sitharaman on February 1 announced that the government will bring 'Vivad se Vishwas 2' to settle commercial disputes. The 'Vivad se Vishwas 1' is the first dispute resolution scheme in the series introduced earlier by the government in 2020.

The 'Vivad se Vishwas' scheme, which had led to a furore by the Opposition due to its name to its nature, was launched in an attempt to reduce the number of direct tax litigation cases that are pending. The scheme is a huge relief for the taxpayers who do not want to go to court and reduces the friction between taxpayers and the Income Tax department.

Here is a look at the scheme and what it means.

'Vivad se Vishwas' says 'no dispute, but trust'

The scheme 'Vivad se Vishwas' literally means 'from dispute to trust' and was announced by the Finance Minister in the Union Budget 2020. The main essence behind the scheme is to reduce the number of ongoing legal disputes in the domain of direct taxation.

The scheme provides once in a lifetime opportunity to settle direct tax litigation disputes currently pending in courts without paying any interest or penalty. The taxpayer is granted immunity from levy of interest, penalty and institution of any proceeding for prosecution for any offence under the Income Tax Act in respect of matters covered in the declaration.

By paying 100 percent of the contested tax and 25 percent of the disputed penalty, interest, or charge, the 'Vivad se Vishwas' scheme allows for the settlement of disputed tax, disputed interests, disputed penalty, or disputed fees in respect to an assessment or reassessment order.

Announcing the scheme in the Union Budget 2020, the Finance Minister had informed that there were as many as "4,83,000 direct tax cases pending in various appellate forums i.e. Commissioner (Appeals), ITAT, High Court and Supreme Court," according to media reports.

According to the scheme, the interest and penalty associated with the disputed tax amount is completely waived off till the given deadline, but after the due date, some additional amount has to be paid along with the tax amount.

According to the reports, over Rs 9 lakh-crore worth of direct tax disputes were pending in the courts at the time of the announcement of the scheme. The experts believe that this could be a game changer and address the huge shortfall in revenues, especially tax revenues.

The success of Sabka Vikas scheme for indirect taxes

Before the 'Vivad se Vishwas' scheme for the direct tax disputes, the Modi-led government had earlier introduced the 'Sabka Vikas' scheme for indirect taxes. The scheme aimed at reducing litigations in indirect taxes and was a huge success. In her 2020 Budget speech, the Finance Minister had informed that the 'Sabka Vikas' scheme had resulted in settling as many as 1,89,000 cases.

One of the standout successes of this scheme was that Mondelez India Foods Pvt Ltd (which was earlier known as Cadbury India) settled one of its most controversial tax disputes, pertaining to its alleged plant in Baddi, Himachal Pradesh, with the government under this scheme. The firm was accused of evading taxes to the tune of Rs 580 crore (excluding taxes and penalties). In the end, Mondelez paid Rs 439 crore on January 20 under the scheme, according to the media reports.