28 Feb 2020

Tax resolution3 min read

Source: The Hindu

Manifest Pedagogy: The income tax and indirect tax litigation has not only overburdened the courts and various tribunals but also caused an inability to collect much-needed revenue on time. This is also a key area where India can improve in Ease of Doing Business ranking (Paying Taxes).

In news: Vivad se vishwas scheme is announced in the Budget 2020-21.

Placing it in syllabus: Taxation in India

Static dimensions:

  • Pending cases by tax department
  • Garib Kalyan Yojana

Current dimensions:

  • Sabka vishwas dispute resolution
  • Vivad se vishwas
  • Expectations

Content:

Pending cases by tax department:

  • The ‘Vivaad se Vishwas’ scheme announced in the Budget for 2020-21 is aimed at resolving tax disputes worth ₹9.32 lakh crore in 4.8 lakh cases.
  • Over 41,000 cases related to income tax disputes in Madhya Pradesh and Chhattisgarh are pending in various tribunals.

Garib Kalyan Yojana:

  • The Pradhan Mantri Garib Kalyan Yojana (PMGKY) was originally launched in 2015 as a scheme built with the objective of addressing poverty. 
  • However, due to the demonetization drive launched by the government to curb the spread of black money, an amendment was made to the Income Tax Bill and the PMGKY has been made a part of the Taxation Laws (Second Amendment) Act, 2016.
  • Income taxpayers are given the opportunity to forgo prosecution by declaring their illegal money and paying 50% penalty on their unaccounted incomes.
  • Individuals who are declaring their undisclosed income (black money), will be required to pay – 
    • Percentage of tax for undisclosed Income – 30%
    • Penalty for undisclosed income – 10%
    • Surcharge under PMGKY CESS – 33%
    • Amount to be deposited under PMGKY is 25% of undisclosed income (returned as is after a period of 4 years)
    • Interest accumulated during deposit – Nil
  • People can only declare their income which is lying in the form of bank and cash deposits in bank accounts of Indian banks.
  • If a person who has undisclosed income lying with them but has not disclosed it under the PMGKY scheme, they will have to bear a fine of 77.25% of their undisclosed income, if the same reflects in their tax returns.
  • If the income does not reflect in a person’s tax returns, not only will they undergo prosecution but will also be liable to pay a further penalty of 10% additionally.
  • Disclosure of income under this scheme is voluntary
  • Whatever funds are collected under this scheme will be used to make improvements in education, infrastructure and healthcare that is available to the underprivileged and poorer sections of society.

Sabka vishwas dispute resolution:

  • The Sabka Vishwas Scheme was a scheme proposed in the Union Budget, 2019.
  • It was introduced to resolve all disputes relating to the erstwhile Service Tax and Central Excise Acts, which are now subsumed under GST, as well as 26 other Indirect Tax enactments.
  • It came into force on 1st September, 2019 and was operational until January 15, 2020.
  • Benefits of this scheme included:
    • Taxpayers were free to pay the outstanding tax amounts due and be free from any other consequences under the Law. 
    • Taxpayers got substantial relief in the form of full waivers of interest, penalties and fines. 
    • There was complete amnesty from prosecution proceedings.

Vivad se vishwas:

  • The scheme has been proposed by Union Finance Minister Nirmala Sitharaman in Budget 2020-21 speech.
  • It aims to settle and see a finalisation of 4.83 lakh direct tax cases pending at various appellate forums such as the Commissioner (Appeals), the Income Tax Appellate Tribunal (ITAT), high courts and the Supreme Court.
  • Under the proposed scheme, taxpayers willing to settle disputes shall be allowed a complete waiver of interest and penalty if they pay the entire amount of tax in dispute up to March 31, 2020, after which 10 percent additional disputed tax shall have to be paid over and above the tax liability.
  • In case it is just the interest and the penalty which is in dispute, the taxpayer will have to pay 25% of the disputed amount till March 31, and beyond which the same shall be enhanced to 30 per cent.
  • The scheme cannot be availed in case where prosecution has been instituted or where tax arrears relate to undisclosed foreign income or assets. 
  • The scheme will remain open till 30th June, 2020.  
  • The scheme will also cover cases where search and seizure have taken place where the ‘recovery’ is below Rs 5 crore. 

Expectations:

  • It helps to settle more disputes and mop up a larger part of the tax dues locked up in litigation.
  • As it allows assessees to opt for the scheme by paying 50% of the total tax demand in cases where the taxpayer has won the case, this would prevent the Income Tax department from appealing against the court order that favoured the taxpayer.
  • The scheme would boost revenue of the government, thus helping in achieving  the target of a $5 trillion economy by 2024.
  • It helps in clearing up courts and tribunals of pending cases.


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