KT Chandy and Anshul Khemuka
The announcement of the Vivad Se Vishwas Scheme has been one of the most exciting tax events in 2020. The Ministry of Finance has been enthusiastic about rolling out this scheme, tax officials have been proactive in communicating with taxpayers on the benefits of the scheme, and interested taxpayers have been diligent about commencing discussions with their tax teams and consultants in working out its economics. With the Bill passed by both the houses of Parliament and having obtained Presidential assent, it is now enacted into law. The forms in this regard have also been rolled out.
Ever since the draft Bill was introduced, several questions made their way to the Ministry. These included the manner of computing disputed tax liability, the modus operandi when appeals for a particular financial year had been filed by both — the taxpayers and the income tax department, the possibility of picking and choosing specific issues for settlement, and so on. By way of circulating answers to frequently asked questions and hosting a webcast, the Ministry has put forward its best foot in allaying certain apprehensions. Vacuities, however, continue to exist — both in terms of interpretation of this Act and its implementation.
Let us look at some of these gaps and plausible ways to address them, in context of controversies surrounding Tax Deducted at Source (TDS).
In a lot of cases, taxpayers are exploring the benefits of this Act to address TDS-related issues. The good news is that the Central Board of Direct Taxes (CBDT) has clarified that where the deductor settles a TDS dispute under this Act, the TDS credit will be granted to the deductee. However, by allowing credit in the year of settlement of dispute, the Act is creating a mismatch of the TDS credit and creating additional interest burden for the deductee. Had the litigation been settled in the normal course, the TDS credit would have been available to the deductee in the year the income is assessable. It would be good if a specific facility be introduced where the TDS deposited by the deductor under the Act is granted as credit to the deductee simultaneously, albeit in the year to which the income pertains. This would also help resolve any settlement of dispute by the deductee under the Act. Further, clarity on non-levy of fee under Section 234E for TDS-statement filing, would be a welcome clarification.
The CBDT has also clarified that once the deductor settles the TDS liability (against a TDS non-compliance order) under the Act, it would be entitled to corresponding expense deduction in the year in which the TDS was to be made. However, it remains to be seen whether the taxpayer has a choice on the timing of claiming deduction, i.e. whether it can be availed in the year of default or of settlement under the Act.
Further, since disallowance of expense is purely consequential to the TDS default by the deductor, where the deductee discharges taxes and settles appeal under the Act, it may be clarified that along with the relief from the TDS, the deductor shall also be entitled to expense deduction.
While officials have assured that any refund (sans interest) arising pursuant to the Act would be granted within “reasonable time”, it would be good if the CBDT can provide clarity on the timing issue of such refund. Also, to dispel fears of taxpayers, it may be clarified that refunds from undisputed matters would not be impacted under the Act — as of now, it has only been clarified that the interest on undisputed refund would be computed under regular provisions.
Another welcome clarification would be whether the refund arising from settlement in one year under the Act may be set-off against demand arising from settlement in another — while some officials have denied this possibility, inclusion of such provision would make the Act more palatable from a cash flow perspective.
A number of taxpayers, industrial bodies, and consultants have placed their representations to address open issues. We are confident that the CBDT would look to fill-in most gaps in a timely manner. At the moment, however, given the limited clarity on a range of aspects and the novel Coronavirus Covid-19 pandemic, an extension in the due date (of March 31) would be appreciated.KT Chandy is Tax Partner, EY India and Anshul Khemuka is Senior Tax Professional, EY India. Views are personal.