Dispute Settlement: Decoding Vivad Se Vishwas Scheme 2.0

Suyash Sinha Rahul Yadav Gouri Puri Nov 21, 2024

Taxpayers applying for VSVS 2.0 will be required to pay a percentage of the disputed amount, depending on the nature of the tax arrears and the timeline within which the application under the Scheme is made explain Gouri Puri, Partner, Shardul Amarchand Mangaldas, Rahul Yadav, Counsel & Suyash Sinha, Principal Associate, Shardul Amarchand Mangaldas & Co.

The Union Budget 2024 witnessed the announcement of a sequel to the widely popular and successful ‘vivad se vishwas’ dispute settlement scheme introduced by the Government in 2020, in an attempt to reduce litigation and unlock revenues under disputes for the government. On September 19, 2024, the Central Board of Direct Taxes formally notified the Direct Tax Vivad Se Vishwas Scheme 2024 (“VSVS 2.0” or “Scheme”) to take effect from October 1, 2024 along with applicable rules and forms governing the procedure for implementation of the Scheme.

The Scheme provides for settlement of disputes which are pending adjudication as on July 22, 2024 (“Cut-off Date”), before Commissioner (Appeals) or Joint Commissioner (Appeals), Dispute Resolution Panel, Income Tax Appellate Tribunal, High Courts or Supreme Court, as the case may be.

Taxpayers applying for VSVS 2.0 will be required to pay a percentage of the disputed amount, depending on the nature of the tax arrears and the timeline within which the application under the Scheme is made (as summarized in the table below) and withdraw their pending appeals or writs or special leave petitions (“SLP”) etc., as the case may be. Notably, the Scheme makes a distinction between old pending matters (i.e., where appeal(s) have been pending before the same forum since on or before January 31, 2020) (“Old Appellant”) and new matters (i.e. where appeals have been pending after January 31, 2020) (“New Appellant”) for the purpose of quantifying the amounts payable under the Scheme.

Nature of tax arrears	Category of Appellant	Amount payable on or before 31.12.2024	Amount payable on or after 01.01.2025 (but before the sunset date)
Disputed taxes (exclusive of any interest)	New Appellant	100%	110%
Disputed taxes (exclusive of any interest)	Old Appellant	110%	120%
Disputed interest, penalty or fee	New Appellant	25%	30%
Disputed interest, penalty or fee	Old Appellant	30%	35%
In case the pending appeal or writ of SLP was preferred by the tax department, the amount payable will be half of the amount determined as per the table.
In cases where the appeal is pending before an appellate forum and the issue(s) is covered in favour of the taxpayer by a decision of a higher appellate forum in other year(s) (which is in force and has not been reversed), the amount payable will be half of the amount determined as per the table in respect of such issue(s).

In cases where a dispute relates to reduction in the amount of business losses or unabsorbed depreciation or MAT credit, to be carried forward, an option is provided to the taxpayer to either - (a) pay tax on such disputed business loss, unabsorbed depreciation or MAT credit and continue to carry forward such business losses or unabsorbed depreciation or MAT credit without any reduction; or (b) carry forward a reduced amount of business losses or unabsorbed depreciation or MAT credit, as the case may be (without any payment of additional taxes).

The benefits of VSVS2.0 will not be available for appeals emanating out of search operations or foreign undisclosed income or assets, or information received under a tax treaty or international tax information exchange agreement, or where taxpayer is being prosecuted under tax or other prescribed criminal and other laws.

Importantly, no refund can be sought by a taxpayer of amounts paid under VSVS2.0. However, where the amount deposited by the taxpayer prior to opting for the Scheme is in excess of the amount payable under the Scheme, such excess amount will be refunded by the tax department without any interest.

Key benefits of opting for VSVS2.0 include early settlement of pending appeals along with an immunity from interest, penalty and prosecution. Further, settlement of an appeal under the Scheme will not act as an estoppel or amount to taxpayer conceding any tax position. In cases where taxpayers have substantial business losses, unabsorbed depreciation or MAT credit etc., or cases where the odds of success are marred by conflicting judicial opinion, it may be worthwhile to consider opting for VSVS2.0.

Therefore, while VSVS2.0 provides for an opportunity for taxpayers to cease litigation and buy peace of mind, decision to opt for the Scheme should be informed and nuanced. Taxpayers should not adopt a broad brush approach and should do a cost benefit analysis considering facts and circumstances of each pending appeal, evaluating merits of the issues involved, in order to determine if it would be beneficial for them to opt for the Scheme or to continue to litigate for a better outcome. That said, VSVS2.0 is poised to be a win-win for the tax department as well as the taxpayer.