In recent news, the Finance Secretary of India stated that the novel faceless assessment and appeal system would significantly reduce tax disputes. As per the official figures, tax disputes involved over Rs 11 lakh crore in FY19-end, marking a 23% surge from the previous year. Because of the high number of tax litigations in India, resolution time, cost, and taxpayer efforts have all been impacted significantly.
Addressing Tax Disputes through Innovative Initiatives
The government has rolled out several initiatives to minimize tax disputes, some of which are discussed below:
Dispute Resolution Committee
In the Budget 2021, the Minister of Finance proposed the setup of an exclusive Dispute Resolution Committee (DRC). The goal behind this initiative is to provide faster relief for taxpayers entangled in tax disputes. The proposed DRC, established under Section 245MA of the Income Tax Act, will mainly cater to small taxpayers with a taxable income of up to Rs. 50 lakh and a disputed income of up to Rs. 10 lakh.
The committee will be vested with the authority to waive, reduce or offer immunity from any penalty arising from offences punishable under the Income Tax Act. This alternate mechanism via the DRC aims to prevent new disputes and nip the issues in the bud. In terms of alternative dispute resolution mechanisms’ accessibility, India ranks 88 as per the World Rule of Law Index 2020.
Faceless Assessment and Appeal
Three key structural tax reforms were announced by the Prime Minister in August 2020 under the ‘Transparent Taxation – Honouring the Honest’ platform. These included faceless assessment, faceless appeal, and taxpayers’ charter. The faceless assessment system was launched to eliminate the need for taxpayers’ physical presence before tax officials. This initiative has helped resolve over 50,000 disputes since its inception.
The faceless appeal system, on the other hand, aims to eradicate taxman’s discretionary powers and curb corrupt practices while facilitating compliance for taxpayers. Aside from cases related to serious fraud, major tax evasion, search matters, international tax, and black money issues, income tax appeals will be finalized facelessly. The tax charter gives emphasis on taxpayers’ rights and responsibilities to help them understand the Income Tax collection process better.
Furthermore, the government is working towards establishing a National Faceless Income Tax Appellate Tribunal Centre for personal hearings through video-conferencing.
Vivad Se Vishwas Scheme
The Vivad Se Vishwas Scheme is designed to address disputes related to tax, interest, penalty or fees concerning an assessment or reassessment order. The Direct Tax Vivad se Vishwas Act was enacted in March 2020 with the same intent. As per the scheme, settling of disputes requires the payment of 100% of the disputed tax and 25% of the disputed penalty, interest, or fee.
Reportedly, a quarter of all direct tax disputes, approximately 1.25 lakh cases, have chosen the Vivad se Vishwas scheme. This has led to the settlement of Rs. 97,000 crore in tax demands.
