Rs 20 lakh cr pending direct tax demands under litigation: Govt official

Some tax disputes may be resolved through settlements, agreements, or alternative dispute resolution mechanisms.

Direct tax demands worth Rs 18 lakh crore -20 lakh crore are under litigation in various cases currently across sectors including transfer pricing, royalty payments, classification of income under various heads, deductions claimed by taxpayers and other cases, a senior government official told Moneycontrol.

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Some tax disputes may be resolved through settlements, agreements, or alternative dispute resolution mechanisms, leading to adjustments in the quantum of direct tax under litigation.

Direct tax litigation cases refer to legal disputes arising from the assessment and collection of direct taxes, such as income tax, corporate tax, and capital gains tax. These cases typically involve disagreements between taxpayers and tax authorities regarding the interpretation or application of tax laws, regulations, or tax assessments.

In India, direct tax litigation cases are quite common due to the complex tax laws and the large number of taxpayers. The Income Tax Appellate Tribunal (ITAT), High Courts, and the Supreme Court are the primary forums for resolving direct tax disputes.

Litigation issues

The numerous ongoing direct tax litigation cases in India cover a wide range of issues such as transfer pricing, taxation of offshore transactions and transfer of assets, classification of income under various heads (salary, business income, capital gains, etc.), deductions claimed by taxpayers, tax treatment of restructuring; and interpretation of tax treaties and Double Taxation Avoidance Agreements (DTAA).

The litigation cases span various sectors and industries, including Information Technology, manufacturing, pharma, realty and consumer goods.

The Union Budget on February 1, 2024, announced that the government would write off some controversial and minor tax claims of earlier years, totalling Rs 3,500 crore. The tax demands that the government announced would be dropped were linked to a total of 2.1 crore demand notices for amounts less than Rs 25,000.

To reduce tax litigations and disputes, which were stuck due to inadequate data or dispute, the Finance Minister proposed to waive trivial outstanding tax demands of up to Rs 25,000 for the period up to 2009-10. Additionally, outstanding disputes for amounts up to Rs 10,000 for the years 2010-11 to 2014-15 will be waived.