Schemes for Reducing Tax Disputes

• 13 Feb 2021

Why in News

Recently, the Finance Secretary has said that the new system of faceless assessment and appeal would help bring down tax disputes substantially.

Key Points

• Tax Disputes (Data):
  
  • As per official data, the amount involved in tax disputes was over Rs. 11 lakh crore in FY19-end, up 23% over a year-ago.
  • Since India has a very high number of tax litigations, the resolution times are significantly higher, involving time and cost (on the part of the government as well as taxpayers).
• Initiatives Taken to Reduce Tax Disputes:
  
  • Dispute Resolution Committee:
    
    • In Budget 2021, the Minister of Finance has proposed the formation of a Dispute Resolution Committee (DRC) in order to provide quicker relief to taxpayers in tax disputes.
    • It will be formed under a new section, 245MA, of the Income Tax Act.
    • The DRC will cater to small taxpayers having a taxable income of up to Rs. 50 lakh and a disputed income of up to Rs. 10 lakh.
    • The Committee will have the powers to reduce, waive any penalty or give immunity from any offence punishable under the Income Tax Act.
    • The alternative mechanism through the DRC shall help taxpayers in preventing new disputes and settling the issue at the very initial stage.
      
      • India has been ranked at 88 in the World Rule of Law Index 2020 in terms of accessibility of alternative dispute resolution mechanisms.
  • Faceless Assessment and Appeal:
    
    • The Prime Minister in August 2020 announced three key structural tax reforms under the ‘Transparent Taxation - Honouring the Honest’ platform - faceless assessment, faceless appeal and taxpayers’ charter.
    • The faceless assessment system was launched to remove the need of the physical presence of the taxpayers in front of the tax officials.
      
      • Since the launch of faceless random assessment, over 50,000 disputes have been settled.
    • The faceless appeals system aims to eliminate discretionary powers of the taxman, curb corrupt practices and provide ease of compliance to taxpayers.
      
      • Income Tax appeals will be finalised in a faceless manner with the exception of appeals related to serious fraud, major tax evasion, search matters, international tax issues and matters pertaining to black money.
    • The tax charter elaborated on the rights and responsibilities of the taxpayers to help them familiarise with the whole process of Income Tax collection.
    • The effort is on to establish a National Faceless Income Tax Appellate Tribunal Centre that will offer personal hearings through video-conferencing.
  • Vivad Se Vishwas Scheme:
    
    • The scheme provides for settlement of disputed tax, disputed interest, disputed penalty or disputed fees in relation to an assessment or reassessment order on payment of 100% of the disputed tax and 25% of the disputed penalty or interest or fee.
    • The Direct Tax Vivad se Vishwas Act, 2020 was enacted in March 2020 to settle direct tax disputes locked up in various appellate forums.
    • As many as 1.25 lakh cases, a quarter of all direct disputes, have opted for Vivad se Vishwas scheme, enabling settlement of Rs. 97,000 crore in tax demands.

Source: IE