Unclog Indian direct tax litigation:

No penalty, no interest, and full immunity for settling appeals by 31 December 2020

Karishma Phatarphekar, Partner, Deloitte Touche Tohmatsu India LLP

The Indian Government, to clear the backlog of appeals, has launched a direct tax litigation settlement scheme named the ‘Direct Tax Vivad Se Viswas Scheme’ (VSV scheme). The ‘VSV scheme’ provides taxpayers with an option to put a full stop to the entire litigation process and achieve finality merely by paying the tax component of the dispute. The Indian Government shall waive penalty and interest, and is offering a 50 percent discount to settle revenue appeals and appeals where the taxpayer has a favourable precedent by a higher court. An important aspect is that the ‘VSV scheme’ is not an amnesty scheme and explicitly clarifies that availing this option shall have no precedence value qua the principal issues. Thus, taxpayers can decide to settle their appeals based on an objective comparison of future litigation costs with the cost of availing the settlement option.

The Indian tax administration has also embraced the ‘VSV scheme’ and proactively published various FAQs addressing practical difficulties, for example, allowing credit of taxes to the other party when a taxpayer settles his withholding tax appeal. They are keen to resolve issues, open for discussion, and provide clarifications concerning nuanced situations.

Taxpayers can avail the ‘VSV scheme’ by filing for settlement before 31 December 2020 and paying the settlement amount by 31 March 2021. If payment is made after 1 April 2021, an additional 10 percent is prescribed.

The ‘VSV scheme’ offers corporates a once in a lifetime opportunity to opt for certainty instead of going through the mill of strenuous litigation process, which may last for 15–20 years. Organisations can free up their resources from unwanted hassles of business disruptions due to tax disputes with the government. Hence, taxpayers must analyse the impact of ‘VSV scheme’ on all their open litigation as it allows them to free their balance sheets from corresponding provisions and contingent liabilities, achieving the much desired ‘tax certainty’ they have been seeking for years.

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