Passing of the Direct Tax Vivad Se Vishwas Bill, 2020 in the Rajya Sabha
Rajya Sabha passed the Direct Tax Vivad Se Vishwas Bill, 2020 on 13.03.2020 after its consideration. The bill has already been passed by the Lok Sabha on 04.03.2020. The Rajya Sabha has also recommended two amendments to the Direct Tax Vivad Se Vishwas Bill, 2020.
The questions raised, the reply of the Finance Minister and the recommendations of the Rajya Sabha to The Direct Tax Vivad Se Vishwas Bill, 2020 is also discussed in this article.
Since the Direct Tax Vivad Se Vishwas Bill, 2020 is a money bill, the recommendations may or may not be accepted by the Lok Sabha.
The questions raised, the reply of the Finance Minister and the recommendations of the Rajya Sabha to The Direct Tax Vivad Se Vishwas Bill, 2020 is also discussed in this article.
Since the Direct Tax Vivad Se Vishwas Bill, 2020 is a money bill, the recommendations may or may not be accepted by the Lok Sabha.
What is a Money Bill
A money bill can only be introduced in the Lok Sabha and must be passed with a simple majority of all members present and voting. The bill is then sent to the Rajya Sabha, which has to send it back to the Lok Sabha with its recommendations. The Lok Sabha may consider the recommendations or reject them if it chooses to. If the Rajya Sabha fails to give its recommendations within 14 days, the bill is considered passed by the Parliament.
After the Bill gets the assent of the President, it will become an Act and will be called as the Direct Tax Vivad Se Vishwas Act, 2020.
What the Vivad Se Vishwas Bill Provides
What the Vivad Se Vishwas Bill Provides
The Bill seeks to provide an opportunity to the taxpayers to settle their tax disputes by paying the disputed tax with complete waiver of interest and penalty if paid by March 31, 2020. An additional 10 per cent of the disputed amount is required to be paid if paid after March 31 but before the end date of the scheme which is yet to be notified.
Why Vivad Se Vishwas Scheme is introduced
As per the government, there are 4,83,000 direct tax cases pending in various appellate forums such as Commissioner (Appeals), Income Tax Appellate Tribunal (ITAT), High Courts and Supreme Court and involves tax amount of Rs 9.5 lakh crore in disputes. The government aims to collect Rs 1.5 lakh crores from the scheme.
Announce of the Vivad Se Vishwas Scheme
The Finance Minister announced about the direct tax amnesty scheme Vivad Se Vishwas (No dispute but Trust) while presenting the Union Budget 2020 on February 1, 2020.
Finance Minister Nirmala Sitharaman had earlier introduced the Bill in the Lok Sabha on February 5, 2020 and moved significant amendments thereafter to the scheme to widen the scope of the scheme, clarify certain issues and changes in procedural matters of the scheme and thus making the scheme more attractive.
However, the direct tax amnesty scheme was amended even before it was passed by the Lok Sabha but after introduction in the Lok Sabha. The Direct Tax Vivad Se Vishwas Bill, 2020 as passed by the Lok Sabha on March 4, 2020, contains the amended provisions.
The Bill seeks to settle the tax disputes between the assessee and the department since tax disputes consume copious amount of time, energy and resources both on the part of the Government as well as taxpayers. Moreover, such tax disputes also deprive the Government of the timely collection of revenue. Therefore, there is an urgent need to provide for the resolution of pending tax disputes. This will not only benefit the Government by generating timely revenue but also the taxpayers who will be able to deploy the time, energy and resources saved by opting for such dispute resolution towards their business activities.
During the discussion, it was said that the government is not addressing the actual cause of tax litigation. The unrealistic target of tax collection is putting pressure on the taxpayers in the form of tax terrorism. The economic condition of the country is in serious condition as the tax collection is falling. It was suggested to emphasize on a simplified tax code to minimise tax litigations in the country.
Read the debate in Rajya Sabha on The Direct Tax Vivad Se Vishwas Bill, 2020.
(Extract Copy/pages relevant to the Bill only.)
How much disputed tax is required to be paid
Under the amnesty scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get a complete waiver of interest and penalty provided. Further, in search cases, the amount payable is 125% of the disputed tax compared to 100% in non-search cases.
For disputed penalty, interest and fee, the taxpayer would be required to pay only 25 per cent of the same for settling the dispute.
In case the matter is decided in favour of the taxpayer, the payment of disputed tax is half of the normal rates.
The above rate of payment shall remain valid if paid by 31st March, 2020. In case it is paid after 31st March but before the end date of the scheme, a higher 10 percentage point of normal rate is required to be paid.
Under the amnesty scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get a complete waiver of interest and penalty provided. Further, in search cases, the amount payable is 125% of the disputed tax compared to 100% in non-search cases.
For disputed penalty, interest and fee, the taxpayer would be required to pay only 25 per cent of the same for settling the dispute.
In case the matter is decided in favour of the taxpayer, the payment of disputed tax is half of the normal rates.
The above rate of payment shall remain valid if paid by 31st March, 2020. In case it is paid after 31st March but before the end date of the scheme, a higher 10 percentage point of normal rate is required to be paid.
What is the objective of Vivad Se Vishwas Bill
Amendments suggested by the Rajya Sabha to The Direct Tax Vivad Se Vishwas Bill, 2020
The Rajya Sabha recommends to the Lok Sabha that the following amendment be made in the Direct Tax Vivad se Vishwas Bill, 2020, as passed by Lok Sabha, namely: -
That at page 7, after line 7, the following be inserted, namely: -
The Rajya Sabha recommends to the Lok Sabha that the following amendment be made in the Direct Tax Vivad se Vishwas Bill, 2020, as passed by Lok Sabha, namely: -
That at page 7, after line 7, the following be inserted, namely: -
"(v) relating to any undisclosed income assessed, based on transactions involving de-monetized currencies, consequent to de-monetization of currencies which came into effect on 8th day of November, 2016, if the amount of disputed tax exceeds rupees one lakh;
(vi) relating to any undisclosed income assessed based on transactions involving shell companies if the amount of disputed tax exceeds rupees five lakh: "
The above amendment is proposed in section 9 of The Direct Tax Vivad Se Vishwas Bill, 2020 which excludes certain cases out of this scheme.
The above amendment is proposed in section 9 of The Direct Tax Vivad Se Vishwas Bill, 2020 which excludes certain cases out of this scheme.
Debate / Discussion in the Rajya Sabha and the reply of the Finance Minister
While moving the Bill in the Rajya Sabha, the Finance Minister, Nirmala Sitharaman said, this Bill has been brought up with the objective to settle the tax dispute in an efficient manner.
While moving the bill in the upper house, the Finance Minister narrated the rationale of bringing the Bill. The excerpt of her narration is reproduced below-
While moving the bill in the upper house, the Finance Minister narrated the rationale of bringing the Bill. The excerpt of her narration is reproduced below-
Sir, there was an announcement made in the budget that since there are presently a large number of income tax appeals pending in various courts, at various levels of adjudication, whether it is at the level of Commissioner of Appeal or at the level of Income Tax Appellate Tribunal or at The High Court and the Supreme Court level, - people have spent years waiting for the resolution of these disputes and a lot of money is spent both by the Government and also the parties who have gone to the courts - with the intention of settling these disputes and also from the experience that we have had in having offered for a Sabka Vishwas Scheme for the indirect taxes, understanding the response that we have received for the indirect tax dispute resolution that we had offered after the July Budget, we thought we should come up with a scheme through which for the direct taxes also, tax assesses are given the relief by settling their disputes. That is where this Vivad Se Vishwas Bill has come up. Just to give you a data to understand the dimensions about which we are talking here, as of 30th November 2019, 4,83,000 cases or appeals are pending at various levels and the tax arrears are to the tune of Rs.9.32 lakh crores. So, we wanted to make sure that the Government can come up with a scheme through which long-pending disputes can be settled as per a formula without any discretion, and that option be given to all the taxpayers.That is where this bill has been drafted and has come to the House. We presented it in the Lok Sabha. It has got passed there and we wanted it to be considered by the Rajya Sabha. Thank you.
During the discussion, it was said that the government is not addressing the actual cause of tax litigation. The unrealistic target of tax collection is putting pressure on the taxpayers in the form of tax terrorism. The economic condition of the country is in serious condition as the tax collection is falling. It was suggested to emphasize on a simplified tax code to minimise tax litigations in the country.
Concerns were also raised on the shortage of available time to pay the disputed tax without an additional 10 per cent enhancement and to the extend the time from the stipulated date of March, 31.
The upper house raised the question on the rationale of bringing the scheme in the form of a separate bill. It was also stated that the bill was hastily brought as a piece of legislation to plug the extraordinary fiscal deficit and that and the Government was not able to raise revenues in traditional ways. The concern was raised since such schemes had been a part of the Finance Bill in the past.
Concerns were also raised on the action of the CBDT which had earlier issued a Circular (Circular No. 7/2020 dated 05.03.2020) to clarify the provisions of the Direct Tax Vivad Se Vishwas Bill, 2020 which was stated to be a breach of privilege of Parliament. The circular was issued on a bill that has not yet become an Act.
It was replied that the circular is not a normal circular but an FAQ circular only to clarify the doubts of the taxpayers instead of waiting till the rules are framed. The circular only clarifies the questions which were asked by the stakeholders.
Concerns were also raised on tax terrorism that the scheme might usher since the appraisal and future postings of the tax officers were linked to the performance of officers in meeting target the scheme. he unrealistic target of tax collection is putting pressure on the taxpayers in the form of tax terrorism.
It was also asserted that the Scheme was essentially taking all those tax officers who filed possibly frivolous cases and giving them a chance to escape. They would essentially get a clean chit because their frivolous activity which had resulted in litigation is now just going to be resolved through settlement.
It was further reiterated that the bill was not addressing the root causes of litigation because those were all just one-time settlements and the actual issues in law which had cause those disputes, those are not being resolved.
Concerns were also raised on the success of the scheme since 85 per cent of direct tax appeals are filed by the IT department itself, but the Department's success, at the highest, is 20 per cent.
Questions were raised on the rationale of providing immunity to those assessees who were assessed for cash deposits during the demonetization period.
It was also questioned in the upper house when the name of the bill refers 'Direct Tax' then why wealth tax and gift tax are outside the purview of the settlement scheme.
Questions were also raised on the rationale of capping of Rs. 5 crore in search and seizure cases.
Questions were raised so far as the title of the Bill is concerned which is kept in Hindi language rather than in English as mandated by Article 348 of the Constitution.
It was replied by the government that this scheme is not a band-aid solution. It is a very well thought through systematic and Consistent effort at reducing the tax burden, simplifying the tax laws and making sure that the people are focussed on their economic activity rather than just going back, again and again, to the tax authorities. To reduce the litigation, the government has also raised monetary limit of appeal filings. The intent is not to bind people into unnecessary litigation, but the intent is to make sure that the people are focussed on their economic activities instead of fighting in courts. It was further stated that the government would take every step to reduce the time for litigation.
The Vivad Se Vishwas Scheme clearly defines the timeline and timely settlement of disputes. The scheme also have a negative list which excludes certain disputes out of this scheme.
The government is trying to solve a dispute in a collaborative manner rather than just an adversarial manner. The Tax-to-GDP ratio of the country was also discussed and compared with some developed nation. The Tax-to-GDP ratio in France is about 46 per cent, in Germany, it is about 38 per cent, in the United Kingdom, it is about 33 per cent, in the United States, it is about 24 per cent, and, in India, this ratio is about 11.5 per cent.
So, the steps which the hon. Finance Minister has taken to broaden the tax base, to simplify the structure and to reduce the litigation is welcome worthy. The government wants businesses and individuals to focus on economic activity rather than wasting their time and energy in litigation. That is what will actually increase employment.
The above is the reply from SHRI ASHWINI VAISHNAW.
The reply of the Finance Minister is reproduced below-
The upper house raised the question on the rationale of bringing the scheme in the form of a separate bill. It was also stated that the bill was hastily brought as a piece of legislation to plug the extraordinary fiscal deficit and that and the Government was not able to raise revenues in traditional ways. The concern was raised since such schemes had been a part of the Finance Bill in the past.
Concerns were also raised on the action of the CBDT which had earlier issued a Circular (Circular No. 7/2020 dated 05.03.2020) to clarify the provisions of the Direct Tax Vivad Se Vishwas Bill, 2020 which was stated to be a breach of privilege of Parliament. The circular was issued on a bill that has not yet become an Act.
It was replied that the circular is not a normal circular but an FAQ circular only to clarify the doubts of the taxpayers instead of waiting till the rules are framed. The circular only clarifies the questions which were asked by the stakeholders.
Concerns were also raised on tax terrorism that the scheme might usher since the appraisal and future postings of the tax officers were linked to the performance of officers in meeting target the scheme. he unrealistic target of tax collection is putting pressure on the taxpayers in the form of tax terrorism.
It was also asserted that the Scheme was essentially taking all those tax officers who filed possibly frivolous cases and giving them a chance to escape. They would essentially get a clean chit because their frivolous activity which had resulted in litigation is now just going to be resolved through settlement.
It was further reiterated that the bill was not addressing the root causes of litigation because those were all just one-time settlements and the actual issues in law which had cause those disputes, those are not being resolved.
Concerns were also raised on the success of the scheme since 85 per cent of direct tax appeals are filed by the IT department itself, but the Department's success, at the highest, is 20 per cent.
Questions were raised on the rationale of providing immunity to those assessees who were assessed for cash deposits during the demonetization period.
It was also questioned in the upper house when the name of the bill refers 'Direct Tax' then why wealth tax and gift tax are outside the purview of the settlement scheme.
Questions were also raised on the rationale of capping of Rs. 5 crore in search and seizure cases.
Questions were raised so far as the title of the Bill is concerned which is kept in Hindi language rather than in English as mandated by Article 348 of the Constitution.
It was replied by the government that this scheme is not a band-aid solution. It is a very well thought through systematic and Consistent effort at reducing the tax burden, simplifying the tax laws and making sure that the people are focussed on their economic activity rather than just going back, again and again, to the tax authorities. To reduce the litigation, the government has also raised monetary limit of appeal filings. The intent is not to bind people into unnecessary litigation, but the intent is to make sure that the people are focussed on their economic activities instead of fighting in courts. It was further stated that the government would take every step to reduce the time for litigation.
The Vivad Se Vishwas Scheme clearly defines the timeline and timely settlement of disputes. The scheme also have a negative list which excludes certain disputes out of this scheme.
The government is trying to solve a dispute in a collaborative manner rather than just an adversarial manner. The Tax-to-GDP ratio of the country was also discussed and compared with some developed nation. The Tax-to-GDP ratio in France is about 46 per cent, in Germany, it is about 38 per cent, in the United Kingdom, it is about 33 per cent, in the United States, it is about 24 per cent, and, in India, this ratio is about 11.5 per cent.
So, the steps which the hon. Finance Minister has taken to broaden the tax base, to simplify the structure and to reduce the litigation is welcome worthy. The government wants businesses and individuals to focus on economic activity rather than wasting their time and energy in litigation. That is what will actually increase employment.
The above is the reply from SHRI ASHWINI VAISHNAW.
The reply of the Finance Minister is reproduced below-
THE MINISTER OF FINANCE (SHRIMATI NIRMALA SITHARAMAN): Sir, first of all, I would like to thank all leaders belonging to various political parties. I take their names with due respect and thank Shri Ghulam Nabi Azad, Shri Tiruchi Siva, Shri Satish Misra, Prof. Ram Gopal Yadav, Shri Derek O'brien and Shri Navaneethakrishnan, because they have very readily come to cooperate and agreed, as was reminded by Shri Derek, on a Friday, to take this Bill into consideration by understanding the importance of the Bill itself. And, therefore, let me start by specially thanking each one of them for having been very cooperative and sitting through consideration of the Bill.
Sir, before I start, there were 12 Members who have spoken in detail about the Bill. I thank each one of them. They have raised certain issues which are critical to the implementation of this scheme itself. I shall reply to some of the questions and also provide clarifications, in brief, considering that I have been asked not to speak elaborately.
I have broadly regrouped issues that have been raised by the hon. Member into 12 categories. I will quickly go through each one of them in such a way that it answers questions of several hon. Members.
The first important question asked is, 'Is issuing a lot of clarifications through FAQs based on what was presented and tabled in the Lok Sabha so that people will get to know what is actually in the scheme as an explanatory a violation? Sir, a reference has been made to a Circular No. 7 of 2020 wherein the FAQs have been elaborated. A question was raised, 'Was it not a breach of privilege? '
I would just like to read one line from Circular No. 7 of 2020, wherein FAQs have been elaborated. Before we elaborate all these, there is a line mentioned before the FAQs are explained. It says and I quote, 'These clarifications are, however, subject to approval and passing of the Direct Tax Vivad se Vishwas Bill, 2019 by Parliament and receiving the ascent of the hon. President of India.' It has been stated upfront, much before the details have been given and, therefore, I wanted to assure the hon. Members that there is no breach of privilege. We are only trying to explain things to the people and that is clearly stated upfront as a disclaimer.
Second is about setting targets. A question has been asked: 'Have you brought pressure on the heads of tax assesses, have you brought pressure on the tax authorities themselves indicating that their performance would be reflected in their ACRs? '
Sir, first of all, it is an outreach programme which go on saying what the scheme is all about and why should they encourage the assesses to come on board. So, the target set more for outreach activity rather than making every assessee come into the scheme. So, let that be very clear.
Of course, we want our officials to be taking every scheme of the Government seriously, but not to the point of compelling anyone to come into the scheme.
Third is the issue relating to end-date, has it got too short time and is it too quick to be implemented? When will you close it? Is there any statement?
We want to assure that the date given 31st March is for payment without any kind of penalty or additional charge or anything of that kind. Between 31st March and June 30th with additional 10 per cent payment, given formula of the scheme, people can join in. However, what is important here is that the bill authorizes the Government to notify the end date. So depending on how this whole thing is going, based on the suggestions coming from the tax assesses themselves, the notification will be issued later.
Then, there is confusion whether there are two dates - 31st March and 30th June. Hon. Member, Navaneethakrishnan, had put this question whether there are two dates. I will explain this.
To enter into the scheme and pay the money as per the formula given there, 31st March is the date given, for which, of course, FAQs have been in public domain for a very long time, since we tabled it in the Lok Sabha. With a certain amount of penalty, that is, 10 per cent additional charge, the last date the 30th June. But, till 31st March, there is no additional payment. After 31st March, till 30th June, there is 10 per cent additional charge. That is why two dates have appeared. There is no confusion about it. But, eventually, the date of end of the scheme will be notified by the Government. This Bill has empowered the Government to carry on with that.
The other question, which was raised, was whether wealth tax is also included in this. Are taxes, laid on the wealth of people, also included in this? This is a scheme which is being brought in for the Income Tax Act. So, only those disputes, which pertain or come under the Income Tax Act, will be taken up, not those that come under the wealth tax. So, I just want to draw the attention of the Hon. Member who raised it.
Then, another very important question was raised: All right, you are giving us this scheme, but this is because there have been disputes. But, why, at all, these disputes are there? Are you doing anything to reduce the root cause of litigation?
I would like to assure the hon. Members that reducing the discretion, which is in the hands of the tax authorities and who also have high-pitched assessments for any assessee and then further pursuing it, and so on, all this is now coming to zero because the Government is now using technology. We are bringing in faceless assessment. Not just faceless assessment, but the appeals would also now become faceless. So, through the e-mail, through questions that are asked through the group of people, who will be understanding the faceless assessment scheme and who will be guiding them, this will happen. Therefore, a very pertinent point was raised that the root cause of the litigation should be addressed. The Government is taking all steps towards reducing the litigation. It is our priority.
Then, the next point was raised whether we are going to allow cases that are already under prosecution. I just want to highlight that if the Prosecution is based on the Income Tax Act, I mean, the tax authorities have taken you to the prosecution, of course, you will be excluded. But, if you have prosecution under various other Acts, you are welcome to join the scheme, but the exclusion is only for those prosecutions that are under the Income Tax Act.
Sir, before I take up the issue raised by hon. Member, Shri Tiruchi Siva, I will move over to the question raised by hon. Member, Dr. Amar Patnaik, about the transfer pricing related matter.
The secondary adjustment only applies to the Assessment Year 2017-18 and subsequent years. It does not apply to earlier years to which most of the transfer pricing cases pertain. So that's the specific clarification for the question related to transfer pricing.
Another very frequently raised issue was why only the cases that are below rupees five crores are being included, and not those that are above rupees five crores.
I want to make it clear here that the cases above rupees five crores have been excluded so that large evasion-related cases and fraud cases do not come into the scheme and take advantage of this scheme.
That is why we have limited it to the topmost extent of Rs.5 crores and not beyond. So, we do not want disputes, which involve larger sums, to take advantage of the scheme, much before we can even establish what behind those kinds of disputes is.
The last two points which I would like to highlight, just so that my Parliamentary Affairs Minister is not worried if I am taking too much time, are: Is this going to provide amnesty to those who are covered under the demonetisation-related cases? The hon. Member, Shri Wilson, raised this question.
First of all, this scheme is not an amnesty scheme at all. But the taxpayer has to pay a certain tax amount and that tax amount, the undisclosed cash deposit during demonetisation, is liable to be suffering a tax of 75 per cent. Hence, the taxpayer has to pay 75 per cent, the demonetisation related ones, of tax for settling the dispute regarding the cash deposits, which had been made during the period of demonetisation. So, it is not an amnesty for anyone.
Lastly, what happens to those who have paid tax under protest?
It is mentioned in the bill that if the amount already paid by the taxpayer exceeds the amount payable by the taxpayer under this scheme, refund shall be granted to the taxpayers. So, those who have paid with a protest, if the amount paid already is much higher than the tax which they have to duly pay, then, you have this relief of the refund coming in.
Lastly, I come to the issue of language, the use of language as to why 'Vivad Se Vishwas'. Actually speaking, yes, it is not put in the bracket. "The Direct Tax Bill, 2020 'is the Bill's name." The ' Vivad Se Vishwas' should have been technically within brackets, just for making it clear.
I fully respect the views given by Shri Tiruchi Siva and also Shri Wilson. I do respect that. Even I would love to have them in each one of the regional languages, and not really intended to impose any particular language. Of course, I can give an assurance to the hon. Members who have raised this issue that through a circular, I will ensure that all regions do use it, even in the local language, and also advertise it through a local language than to have just that one expression in Hindi, which may not, I agree, be understandable by many of the regional language speaking tax assesses.
Sorry, it won't substitute, because, again, I will have to go back to the Lok Sabha to seek the consent and so on. So, because it has some practical difficulty…
Both the hon. Members, Shri Tiruchi Siva and Shri Wilson, yes, they reminded me; I am also from a non- Hindi speaking state. I do understand the importance of mother tongue and regional languages. In this case, I yield by saying, I give an assurance that we will have circulars going to all the regions to highlight each of the points in this scheme in the respective regional languages.
With this, I seek the support of all the hon. Members and, once again, thank all of them for having been so cooperative.
Read the debate in Rajya Sabha on The Direct Tax Vivad Se Vishwas Bill, 2020.
(Extract Copy/pages relevant to the Bill only.)
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