Vivad Se Vishwas 2.0: Reduced Settlement for Declarations Filed by December 31

Vivad Se Vishwas 2.0: Reduced Settlement for Declarations Filed by December 31

The Income Tax Department has launched the much-anticipated Vivad Se Vishwas Scheme 2.0, providing a simplified route for settling pending income tax disputes at a reduced cost for taxpayers who submit their declarations by December 31, 2024. Initially announced by Finance Minister Nirmala Sitharaman in the 2024 Budget, this updated scheme takes effect from October 1, 2024, and includes detailed rules and forms.

Key Highlights of Vivad Se Vishwas 2.0

The scheme is designed to promote early resolution of tax disputes by offering significant settlement benefits. Taxpayers classified as “new appellants” will be eligible for lower settlement amounts compared to “old appellants.” Even greater reductions are available for those who file before the December deadline. However, after January 1, 2025, the settlement rates will increase by 10%, encouraging taxpayers to act quickly.

The Central Board of Direct Taxes (CBDT) has outlined a step-by-step process for filing under the scheme, which must be done electronically using a new set of forms:

  • Form-1: Declaration and Undertaking by the taxpayer.
  • Form-2: Certificate issued by the Designated Authority.
  • Form-3: Intimation of payment, submitted electronically with proof of appeal withdrawal.
  • Form-4: Final Order for Full and Final Settlement by the Designated Authority.

Notably, taxpayers must file a separate Form-1 for each dispute. However, if both the appellant and the Income Tax Authority have filed appeals on the same matter, only one Form-1 is required.

A Move to Manage Litigation

With over 2.7 crore direct tax demands amounting to Rs 35 lakh crore currently under litigation, Vivad Se Vishwas 2.0 is positioned to substantially reduce the backlog of cases. The forms will be made available on the Income Tax Department’s e-filing portal, ensuring a streamlined process for taxpayers.

Businesses to promptly assess their pending income tax disputes and consider utilizing the scheme before the December 31 deadline. Waiting until after this date could lead to increased costs, as settlement rates will rise by 10% starting January 1, 2025. Companies are urged to evaluate the scheme from both a financial and strategic perspective, as the limited window for reduced settlements may present significant opportunities for cost savings.

Read More: NRI Tax Benefits on Income Earned in India and Abroad

Take Action Before the Deadline

As the deadline for lower settlement rates approaches, taxpayers must make informed decisions about whether to opt into the Vivad Se Vishwas Scheme 2.0. Early participation could lead to substantial savings and the resolution of long-standing disputes.

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Parliament Passes Vivad Se Vishwas Bill

The Parliament has adopted Vivad Se Vishwas Bill, 2020 today

The bill provides for an exemption of interest, penalty, and prosecution for the settlement of direct tax disputes. It grants a complete waiver of interest and penalty if the amount at issue is paid before the 31st of this month, and provides for an additional 10% of the amount at issue in cases where the settlement is made before 30 June of this year.

Rajya Sabha approved a motion to bring the bill back to the Lok Sabha. The lower house had passed the bill earlier.

The government will take all the steps to reduce tax litigation on a priority basis. Government assured that the discretion of the tax authorities would be reduced by a technology-driven, faceless assessment. Tax-related disputes in a country of more than 9 lakh crore rupees are pending against more than 4 lakh disputes in various appellate forums.

The Government assured that the provisions of this bill would provide absolute immunity from prosecution under the Income Tax Act once the dispute had been resolved. It has, however, clarified that it governs only disputes relating to Direct Taxation and not disputes relating to wealth tax. Addressing a request from a Member of Parliament, cases above five Crore Rupees are excluded under the scope of this bill in order to prevent the alleged tax elders from taking undue advantage of these provisions.

The bill has been drafted with the aim of resolving the tax dispute in an efficient manner.

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Changes via Company Auditor’s Report Order , 2020 CARO

CARO Reporting, 2020 being notified

MCA has notified particular issues being important & thereby should be reported as per particular norms with the financial statements for certain entities as a part of their audit reports for almost all companies except a few below.

Banking, Insurance, Charitable setups & small cos. or OPC has been kept out of this exercise. Also, some smaller setups with below norms are exempt from this as below –

  • Not a holding or subsidiary of a Public company
  • Paid-up Capital plus Reserves l< 1 Crore at the reporting date.
  • Borrowings less than or equal to Rs. 1 Crore at any time during the year
  • Revenue less than or equal to Rs. 10 Crores in the financial year

Key points of change suggest towards-

company laws
  • Whether the company is maintaining proper records showing full particulars of intangible assets
  • Reporting on revaluation of Property, Plant and Equipment’s by company
  • Reporting of proceedings under the *Benami Transactions* (Prohibition) Act, 1988. i.e. whether the company has appropriately disclosed the details in its financial statements
  • Reporting if the *stock statements filed with banks* are in line with books of accounts, if the company was sanctioned working capital limits in excess of five crore rupees or more from banks or financial institutions. To report any discrepancies of 10% or more in the aggregate for each class of inventory
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  • Report quarterly returns or statements filed by the company with such banks or financial institutions are in agreement with the books of account of the Company, if not, give details
  • Reporting of *investments* in or providing of any *guarantee or security* or granting any loans or advances.
  • Loans overdue for more than 90 days, *evergreening of loans, reporting on any *loan default*, etc.
  • Report on evergreening of loans – specify the aggregate amount of such dues renewed or extended or settled by fresh loans and the percentage of the aggregate to the total loans or advances in the nature of loans granted during the year
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  • Reporting of compliances with RBI directives* and the provisions the Companies Act with respect to deemed deposits.
  • Reporting with respect to transactions not recorded in the books of account but now surrendered or disclosed as income in the income tax proceedings.
  • Report on  balances outstanding at the balance sheet date with respect to such loans or advances and guarantees or security to subsidiaries, joint ventures, and associates
  • Reporting on treatment by the auditor of *whistle-blower complaints* received during the year by the company
  • Reporting on the internal audit system
  • Reporting on cash losses
  • Reporting on the resignation of the statutory auditors
  • Reporting on the uncertainty of company capable of meeting its liabilities
  • Reporting transfer of *unspent CSR* amount to Fund specified in Schedule VII
  • Investment, Guarantee & Security given has been covered now along with loans & Advances – in terms of benefits to the company
  • Clarification required for Non-Disclosure of Properties taken on Lease by the Lessee
  • Auditor has to specifically comment on coverage and procedure adopted as per audit approach Also Materiality has been  defined as 10% or more in each class of Inventory

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