The federal government’s November 2016 choice to ban sure foreign money notes had come as a shock to folks with unaccounted wealth. It helped the earnings tax (I-T) division determine and go after high-value financial institution depositors. That led to a number of tax disputes because the depositors contested the division’s claims. Now, a few of them who had been served tax notices — and in some instances confronted earnings tax (I-T) division’s surveys and raids earlier than getting tax calls for — could discover a treatment in a authorities scheme, Vivad Se Vishwas.

The distinctive function of the brand new tax disclosure scheme, which Finance Minister Nirmala Sitharaman introduced in her funds speech on February 1, is that it guarantees to wipe off the stigma that normally follows an I-T discover or raid. The laws has been designed as a dispute decision scheme reasonably than a pure amnesty software, the place concessions are normally linked to voluntary disclosure of hidden property. The high-quality print of the laws, nonetheless, will likely be identified solely after the legislation will get notified.

MC Joshi, former chairman, CBDT, “Individuals who did sham transactions in penny shares will use this new scheme. Lots of the post-demonetisation instances, now on the appellate stage, might also get settled. Boards of main listed corporations which are answerable to their shareholders could not be a part of the bandwagon.

The Direct Tax Vivad Se Vishwas Invoice 2020 was tabled in Lok Sabha in February and is more likely to be handed after Parliament reconvenes on March 2. It targets to carry down the four.83 lakh direct tax disputes pending in varied appellate boards, together with courts, involving Rs 9.32 lakh crore, which interprets to about 5% of India’s gross home product (GDP).

Quantity below dispute (in Rs crore) as on Sep 30, 2019

OVER 1 YEAR BUT LESS THAN 2 YEARS 638,432 (three.four% OF GDP)


OVER 10 YEARS 14,180 -Zero.1% OF GDP


Word: Nominal GDP 2018-19 Supply: Standing committee on finance, demand for grants 2019-20, second report

The scheme additionally goals to mop up some tax income, as the federal government expects direct tax assortment to fall wanting the goal of Rs 13.35 lakh crore for the present monetary yr.

Tax Income

The brand new scheme provides amnesty to these are who prepared to settle their instances earlier than March 31 by paying the I-T division’s tax declare. It additionally provides full waiver on pursuits and penalties. These availing the scheme between April and June should cough up 10% further on the disputed tax.

Tax specialists and retired income-tax officers say not one of the massive company homes are more likely to be attracted in direction of the scheme. So it stays a window to settle post-demonetisation I-T instances, disputes over penny shares involving sham transactions and the instances related to shell corporations, simply to call just a few.

Sudhir KapadiaSudhir Kapadia Sudhir Kapadia, nationwide tax chief, EY “New Vivad Se Vishwas is a well-designed scheme with no stigma hooked up to those that are prepared to settle instances. However it’ll make sense just for smaller corporations and people people who’re below scanner for depositing money after demonetisation. Massive corporates are unlikely to come back ahead”

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“The boards of main listed corporations, that are answerable to their shareholders, could not conform to the scheme,” says MC Joshi, former chairman of the Central Board of Direct Taxes (CBDT), hinting that the scheme is unlikely to be a runaway hit in mopping up substantial income. He factors out that instances associated to demonetisation, most of that are on the first stage of attraction on the Commissioner of Revenue Tax (Appeals), and penny shares could possibly be resolved via this scheme.

AFTER NOTE BAN Between November 2016, when demonetisation was introduced, and March 2017, when the monetary yr ended – Supply- Finance Ministry
900- No. of searches by I-T division
Rs 636- Money seizure throughout the searches
Rs 6,745- Undisclosed quantity detected throughout I-T division’s eight,239 surveys
17.92 LAKH- No. of queries despatched through electronic mail, SMS, and so forth, to high-value depositors instantly after be aware ban
three.78LAKH- No of instances lastly pursued by I-T officers; verification was closed for instances the place deposits had been disclosed below Pradhan Mantri Garib Kalyan Yojana

The CBDT is coping with a number of instances associated to tax evasion via bogus capital beneficial properties or loss claims in penny inventory transactions.

Sudhir Kapadia, nationwide tax chief at EY, says there needs to be extra sweeteners to place the Vivad Se Vishwas scheme as a gorgeous proposition. Nevertheless, the scheme is well-designed to wipe away the stigma hooked up with I-T instances.

Case SheetCase Sheet
“However it’ll make sense just for smaller corporations and people who’re below the scanner for depositing money after demonetisation,” he provides.

Kapadia has a cause to make this argument. Greater corporations normally have a number of instances with the I-T division at any given level. This scheme permits decision provided that an organization is prepared to settle all of the instances regarding a interval.

R Prasad, former chairman, CBDTR Prasad, former chairman, CBDTR Prasad, former chairman, CBDT, “To my thoughts, the depositors of huge amount of money after demonetisation are unlikely to settle their disputes until they’re on a weak floor. For instance, some unscrupulous jewellers did wrongdoings on demonetisation days. However sincere jewellers are additionally in bother now.

For instance, if an organization is coping with 5 claims by the I-T division, and its attorneys are virtually sure of successful three instances, it’s unlikely that the board will give a go-ahead to shut all of the instances and pay the taxes claimed. However below Vivad Se Vishwas, the corporate must settle all of the 5 instances or none in any respect.

*The Direct Tax Vivad Se Vishwas Invoice 2020 was launched in Lok Sabha in February after the scheme was introduced within the Finances

*It seeks to resolve direct tax dispute instances pending earlier than varied appellate boards — commissioner (appeals), ITATs, excessive courts and the Supreme Courtroom

*These prepared to settle the instances earlier than March 31 could must pay the taxes and safe a full waiver on pursuits and penalties

*The scheme is meant to stay open until June 30, however these availing it after March 31 must pay further

*The invoice is more likely to be handed within the first week of March when Parliament reconvenes
EY had not too long ago written to the income division urging some flexibility within the scheme in order that corporations can settle a minimum of a few of the pending points. It additionally requested the federal government to supply as much as 50% profit within the tax claims as an alternative of 100%.

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Final yr, the federal government rolled out Sabka Vishwas, a scheme to settle pending disputes associated to oblique taxes. That scheme, which supplied full waiver on curiosity and penalty and supplied immunity from prosecution, was billed a hit after the federal government managed to mop up Rs 39,000 crore. The scheme allowed instances to be settled after fee of 50% of the disputed quantity, in opposition to 100% within the newest scheme.


PENDING I-T APPEALSPENDING I-T APPEALSWord: % of complete appeals; CIT(A) is Commissioner of Revenue-Tax (Appeals); Revenue Tax Appellate Tribunal Supply: Authorities’s response in Rajya Sabha; July 23, 2019.

Within the direct tax section, a voluntary earnings tax disclosure scheme of 1997 had earned the federal government Rs 9,729 crore. It was thought-about some of the profitable schemes.

The Vivad Se Vishwas direct tax scheme, alternatively, provides a waiver to solely curiosity and penalties, elevating questions if it could be seen as being engaging sufficient. Understandably, the best chunk of appeals in direct tax, virtually 70% of the four.83 lakh disputed instances, are on the first stage of attraction — the Commissioner of Revenue Tax (Appeals) — in accordance with 2018-19 knowledge launched by the federal government final July in a response to a query within the Rajya Sabha.

Often, it takes two to 3 years to resolve such a case. After a verdict, the affected celebration can attraction to the Revenue Tax Appellate Tribunal (ITAT) the place 92,205 instances — roughly one out of 5 disputed instances — had been pending until March 31, 2019. A litigation in ITAT could sometimes take a few extra years. If an organization or a person is sad with the ITAT order, an attraction could be filed in a excessive courtroom and subsequently within the Supreme Courtroom.

Often, I-T disputes involving people are resolved on the ITAT until there’s a dispute concerning the interpretation of the legislation. Apart from, arguing a case in a excessive courtroom or the Supreme Courtroom is dear. So instances attain this stage provided that the stakes are excessive.

As on March 31, 2019, as many as 43,244 direct tax instances, or eight.9% of the entire, had been being heard by varied excessive courts. As many as 6,188 instances had been with the Supreme Courtroom. When it comes to tax calls for below dispute, instances involving Rs 6.four lakh crore, or three.four% of GDP, have been below litigation for 1-2 years. Instances involving Rs three.12 lakh crore, or 1.6% of GDP, have been below litigation for 2-5 years.

The CBDT has not disclosed what number of tax disputes are rooted in demonetisation, when the federal government declared invalid all 500 and 1,000 rupee notes in circulation then. Residents got about two months to deposit these invalid foreign money notes of their financial institution accounts.

Instantly after the deadline ended, on December 31, 2016, the tax authority issued 17.92 lakh notices, some even within the type of SMSes, to those that had been believed to have executed some suspicious transactions proper after demonetisation. Later, the CBDT narrowed their focus to three.78 lakh instances — principally involving deposits of Rs 5 lakh or above.

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The federal government stated the verification course of can be closed for instances the place deposits have been disclosed below the Pradhan Mantri Garib Kalyan Yojana 2016. The scheme gave amnesty to individuals who declare unaccounted wealth and paid a high-quality of 50% of the undisclosed quantity. This scheme fetched the federal government simply Rs four,900 crore.

The tax sleuths, within the meantime, stepped up stress on some corporations and people, particularly jewellers and folks with giant actual property holdings. The I-T division carried out 1000’s of surveys and searches to find black cash.

Between November 2016 and March 2017, searches had been carried out at 900 corporations resulting in money seizure of Rs 636 crore. Moreover, Rs 6,745 crore of undisclosed quantity was detected throughout the division’s eight,239 surveys, in accordance with authorities knowledge.

In response to the I-T Act, sleuths can both survey or search a spot for undisclosed wealth. In layman’s phrases, these operations are normally referred to as a raid.

By the start of 2019, the tax authority had realised that as many as 87,000 of their demonetisation-related notices had been being ignored. The entities named in these notices hadn’t paid taxes or filed returns, says a tax official on situation of anonymity. Many jewellers had seen bumper gross sales within the days instantly after demonetisation as folks rushed to purchase gold, thought-about a secure haven funding.

The I-T division discovered that many of the jewelry gross sales throughout this era occurred on November 6 and seven, a day earlier than demonetisation was introduced. This led tax officers to suspect that the jewellers ready backdated invoices to cowl up the purchases made after the be aware ban utilizing black cash.

The I-T division despatched notices to those jewellers. Nevertheless, these folks moved the CIT (attraction), the officer provides. The CBDT even prolonged the deadline for assessing officers to shut demonetisation instances to December 31, 2019.

Matter of Belief

The federal government now hopes that numerous people who’re contesting the post-demonetisation notices could select vishwas (belief) over vivad (dispute). Tax specialists say this assumption could possibly be proper.

However the I-T division should not anticipate a windfall assortment. “To my thoughts, the depositors of huge quantities of money after demonetisation are unlikely to settle their disputes until they’re on a weak floor. Some unscrupulous jewellers might need conduced unlawful trades after demonetisation. However sincere jewellers are additionally haunted by a doable I-T nightmare,” says R Prasad, a former CBDT chairman.

The silver lining is that the scheme is designed as a dispute settlement mechanism and never one crafted to chase hoarders of black cash. It stays to be seen if businessmen will belief the I-T division to settle their disputes.