India’s direct tax system has long been marred by a staggering volume of pending disputes — over 4.83 lakh cases with a disputed amount nearing ₹9.32 lakh crore. Recognising the urgent need to unclog the system and provide relief to both taxpayers and the government, the Vivad Se Vishwas Act, 2020 (VsV) was introduced as a game-changing dispute resolution mechanism.
Why the VsV Act Was Needed?
High pendency in litigation before CIT(A), ITAT, High Courts, and the Supreme Court.
Revenue blockage due to prolonged disputes.
Significant administrative burden on both taxpayers and the Income Tax Department.
An attempt to resolve pending matters amicably and generate timely revenue.
Evolution Timeline
1 Feb 2020: Scheme announced in Budget.
17 Mar 2020: Received Presidential assent.
18 Mar 2020: Rules and forms notified.
31 Mar 2020: Taxation Ordinance extended time limits.
22 Apr 2020: CBDT released detailed FAQs via Circular No. 9/2020.
Who Can Opt?
Eligible if:
Appeal/writ/SLP was pending as of 31 Jan 2020.
The time to file the appeal had not expired by that date.
Application under Section 264 or DRP proceedings was pending.
Disputed tax in search cases is ≤ ₹5 crore for a year.
Who’s Not Eligible?
Disputed tax > ₹5 crore in search cases.
Prosecution instituted cases.
Cases under undisclosed foreign income, PMLA, Benami Act, etc.
Matters with information from foreign countries.
How It Works (Procedure)
Form 1: Declaration by taxpayer.
Form 2: Undertaking to withdraw other legal remedies.
Form 3: Certificate issued by authority within 15 days.
Form 4: Payment by taxpayer.
Form 5: Final order by authority.
Immunity granted from penalty, interest, and prosecution upon compliance.
How Much to Pay?
Case Type Before 30.06.2020 After 01.07.2020
Disputed Tax – Assessee Appeal 100% of tax 110% of tax
Disputed Tax – Dept. Appeal 50% of tax 55% of tax
Search Case (< ₹5 Cr) 125% (assessee) / 62.5% (dept.) 135% / 67.5%
Only Penalty/Interest 25% / 12.5% 30% / 15%
Key Highlights from CBDT FAQs
Arbitration cases allowed, but AAR matters aren’t.
Appeals pending on set-aside orders qualify.
No partial settlement per assessment year.
Tax paid in excess under the scheme is non-refundable.
TDS-related relief granted for both deductor and deductee.
Practical Considerations
Merit of case vs. litigation cost.
Penalty/prosecution exposure.
Cash flow and tax rate under section 115BBE.
COVID-19 led to digital options like EVC and Aadhaar OTP.
Special Legal Points
The declaration does not amount to conceding the legal position.
No reopening under any other law, including Benami and PMLA.
Supreme Court and High Court decisions not automatically binding under VsV for other cases with similar facts.
Final Thoughts
The Vivad Se Vishwas scheme is a win-win helping taxpayers settle disputes at a reduced cost while aiding the government’s revenue collection. For those tangled in protracted tax litigation, it offers a one-time opportunity to exit the maze and start fresh.
So, if you’re in the middle of a tax dispute, this may be the perfect time to consider settling.
Author: CA Pranay Goyal
