Direct Tax Vivad se Vishwas Act 2020, Scheme, Features, Benefits

What is Direct Tax Vivad se Vishwas Act 2020

The Direct Tax Vivad se Vishwas Act, 2020, is a significant piece of legislation introduced by the Government of India to provide taxpayers with a framework for the resolution of pending direct tax disputes. On February 5, 2020, Ms. Nirmala Sitharaman, the Minister of Finance, introduced the Direct Tax Vivad se Vishwas Bill, 2020, in the Lok Sabha. This bill offers a structured approach for addressing pending tax disputes associated with income tax and corporation tax. The name “Vivad se Vishwas” translates to “from dispute to trust” in English, reflecting the Act’s objective to create a more amicable and trust-based environment between taxpayers and the tax authorities.

Direct Tax Vivad se Vishwas Act 2020 Scheme

The Direct Tax Vivad se Vishwas Act, 2020 (VSV Scheme) is a dispute resolution scheme introduced by the Indian government to settle pending direct tax disputes between taxpayers and the Income Tax Department. The scheme was open to taxpayers with direct tax disputes pending before any appellate forum, as on January 31, 2020.

Under the Direct Tax Vivad se Vishwas Scheme, taxpayers could settle their disputes by paying the disputed tax amount and getting a full waiver of interest and/or penalty. The scheme offered two different payment options to taxpayers:

• Option 1: Pay 100% of the disputed tax amount by March 31, 2020, and get a full waiver of interest and penalty.
• Option 2: Pay 110% of the disputed tax amount by June 30, 2020, and get a full waiver of interest and penalty.

The Direct Tax Vivad se Vishwas Scheme was a voluntary scheme, and taxpayers were not obligated to participate in it. However, the scheme offered a number of advantages to taxpayers, including:

• Finality of settlement: Once a taxpayer settled their dispute under the VSV Scheme, the settlement was final and could not be reopened by the Income Tax Department.
• Reduced costs: The Vivad se Vishwas (VSV) Scheme eliminated the need for taxpayers to incur further legal and other costs in pursuing their disputes.
• Improved cash flow: The VSV Scheme allowed taxpayers to settle their disputes at a discounted rate, which helped to improve their cash flow position.

The VSV Scheme was well-received by taxpayers, and over 2.2 lakh taxpayers settled their disputes under the scheme. The scheme helped to reduce the pendency of direct tax disputes and generated significant revenue for the government.

Features of Direct Tax Vivad se Vishwas Act 2020

• Aims and Mechanism: The primary objective of this Bill is to establish a streamlined and expeditious process for resolving outstanding tax disputes linked to direct taxes, including Income Tax and Corporate Tax.
• Easing Litigation: The Finance Ministry reports a substantial backlog of 4.83 lakh unresolved direct tax cases, amounting to Rs. 9 lakh crore in the judicial system. The government’s intent is to swiftly recover these funds through this scheme, effectively reducing litigation.
• Addressing Revenue Shortfall: Given the government’s significant revenue deficit, particularly in tax revenues, enhancing revenue generation is a top priority. The economic downturn and the reduction in corporate tax rates in September 2019 have contributed to lower-than-expected collections of direct taxes.
• Operational Framework: Under this scheme, taxpayers are only required to pay the disputed tax amount to benefit from the waiver of interest, penalties, and prosecution, provided they make this payment by March 31, 2020. In cases where the dispute pertains solely to contested interest or penalties, 25% of the disputed penalty or interest must be paid.
• Important Dates: The scheme allows taxpayers to avail of its benefits until June 30, 2020, but those applying after March 31, 2020, may incur additional costs.
• Legal Safeguards: Upon resolution of a dispute, the designated authority is prohibited from imposing further interest or penalties in connection with that specific case. Moreover, no appellate forum can revisit or adjudicate matters that have been resolved through this scheme.
• Potential Revival of Disputes: It is crucial to note that if an appellant provides false information or violates the provisions of the Income Tax Act, 1961, the dispute case can be reactivated, potentially leading to further legal proceedings.

Benefits of Direct Tax Vivad se Vishwas Act 2020

The Direct Tax Vivad se Vishwas Act, 2020 offers several significant benefits to both taxpayers and the government. Here are some of the key advantages of this legislation:

• Simplified Dispute Resolution: The Act provides a straightforward mechanism for taxpayers to resolve pending tax disputes related to direct taxes, such as Income Tax and Corporate Tax. This simplifies the process and allows for a more efficient resolution of cases, reducing the burden on the legal system.
• Waiver of Interest and Penalty: Taxpayers who opt for the Vivad se Vishwas scheme benefit from a complete waiver of interest and penalties associated with their disputed taxes. This provides significant financial relief to taxpayers who may have accumulated substantial interest and penalty amounts over time.
• Immunity from Prosecution: One of the most attractive benefits of the Act is the immunity it offers to taxpayers from any prosecution or imposition of penalties in relation to the dispute. This encourages taxpayers to come forward and resolve their disputes without fear of legal consequences.
• Confidentiality: The Act ensures that the information provided by taxpayers for the settlement remains confidential. This confidentiality is crucial for taxpayers who might be hesitant to disclose their disputes due to concerns about privacy and potential repercussions.
• Speedy Resolution: The Act aims to expedite the resolution of pending disputes. Taxpayers are encouraged to settle their cases quickly, which not only reduces the backlog of cases but also helps the government recover pending revenues in a more timely manner.
• Ease of Payment: Taxpayers are allowed to make payments in installments, making it more manageable for them to settle their disputes without facing financial strain. This flexibility in payment is a practical benefit for individuals and businesses alike.
• Reduced Litigation: By providing a legal framework for taxpayers to settle their disputes, the Act contributes to reducing the burden of litigation on both taxpayers and the tax department. This results in a more efficient allocation of resources and less congestion in the legal system.
• Revenue Collection: For the government, the Act offers a means to recover outstanding tax dues swiftly. This is especially crucial when there is a revenue shortfall, as it enables the government to enhance its revenue collection, which can be used for various public welfare initiatives.
• Trust-Building: The Act fosters trust and cooperation between taxpayers and the tax authorities. By providing a mechanism for taxpayers to come into compliance, it creates a more positive and cooperative environment for tax administration.
• Budget Targets: For the government, the Act can help in achieving budget targets by ensuring that tax revenues are collected efficiently and in a more predictable manner.

Direct Tax Vivad se Vishwas Act 2020 UPSC

The Direct Tax Vivad se Vishwas Act, 2020, and its provisions can be relevant to the Union Public Service Commission (UPSC) examinations in several ways:

1. Current Affairs: UPSC exams, especially the Civil Services Examination (CSE), require candidates to be well-versed in current affairs. The introduction and implementation of important acts like the Direct Tax Vivad se Vishwas Act are current affairs topics that can be part of the examination. Candidates may be asked about the objectives, features, and implications of such legislation.
2. Economic and Fiscal Policy: The Act is closely related to fiscal policy and the government’s approach to taxation. Understanding the Act’s provisions can be crucial for candidates appearing in exams like the Indian Economic Service Examination, as it demonstrates the government’s measures to streamline tax collections and reduce litigation.
3. Legal Aspects: The Act involves legal aspects related to taxation and dispute resolution. Candidates appearing for exams with a legal focus, like the Law Optional Paper in the CSE, may need to be familiar with the Act’s provisions and its impact on tax laws.
4. Policy Analysis: Candidates in the CSE and other UPSC exams may be required to analyze and evaluate government policies. The Direct Tax Vivad se Vishwas Act is a relevant policy that can be subject to analysis in the context of its impact on revenue collection, dispute resolution, and economic policies.
5. Social and Economic Implications: As with any tax-related legislation, the Act has social and economic implications. Understanding these implications and their potential effects on taxpayers, businesses, and the government’s revenue is important for candidates in exams assessing economic and social aspects.
6. Government Initiatives: UPSC candidates need to stay informed about government initiatives and programs. The Act is one such initiative aimed at simplifying tax dispute resolution and revenue collection, and questions related to it may appear in the exams.
7. Legal and Constitutional Aspects: The Act involves legal and constitutional aspects related to taxation and dispute resolution, which can be a subject of interest in the UPSC examinations, particularly for those with law as their optional subject.

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