Budget 2020: Not just changes in tax slabs, Modi govt may unveil amnesty scheme for taxpayers

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Updated: January 27, 2020 6:16:05 AM

Budget 2020-21: The relief was 60% of the outstanding amount if it was Rs 50 lakh or less and 40% if it was more than Rs 50 lakh.

Budget 2020 India: According to sources privy to the Budget discussions, the scheme would be modelled on a similar one — Sabka Vishwas — that existed for four and half months till January 15, helping settle 95% of indirect tax disputes it was dealing with.

Union Budget 2020: While the Budget is expected to tweak personal income tax (PIT) slabs to give relief to large sections of taxpayers and prop up sagging consumption, the government may also seek to offset the resultant short-term revenue loss by unveiling a liberal dispute resolution scheme. The new amnesty would enable the government to garner big chunks of revenue in FY21 but there is a possibility that it could commence in the current financial year itself.

According to sources privy to the Budget discussions, the scheme would be modelled on a similar one — Sabka Vishwas — that existed for four and half months till January 15, helping settle 95% of indirect tax disputes it was dealing with.

The initiative comes at a time when direct tax collections have been hit hard. Till January 15 this year, the gross collections (before transfers to states but post-refunds) were down 5% on year, as against a growth of 17% required to meet the budget estimate of Rs 13.35 lakh crore.

Although latest amount stuck in disputes between the taxman and the taxpayer in the direct tax arena isn’t known, the disputed amount was revealed to be a whopping Rs 6.23 lakh crore at the end of FY18, including Rs 4 lakh crore locked up over corporate tax disputes. While demonetisation helped boost personal income tax collections — the mop-up grew 22% in FY17 —that proved to be a blip and the growth has since fallen steeply. The government has had only modest success so far in proving the unmet tax liabilities of those who deposited huge amounts of cash in banks during demonetisation.

Govt stares at Rs 2-lakh-cr tax shortfall; room for PIT relief limited;

Direct tax collections fell by over 5% till January 15 this fiscal largely due to the lower collections in corporation tax, which is partly attributable to the slashing of rates in September. With less than a quarter to go, the government is all but sure to miss the budget estimate target for direct tax mop-up. The collections till January 15 were only Rs 7.3 lakh crore versus Rs 7.7 lakh crore in the year-ago period.

Delivering a lecture on Sunday, finance minister Nirmala Sitharaman said the government was keen on quick resolution of pending tax-related disputes so that firms, especially MSMEs, could start a new life in technology-driven regime largely devoid of face-to-face interactions with the tax administration. She said the dispute resolution scheme launched last year for indirect taxes had been a success, and the ministry would replicate the same for income tax cases.

“Nearly 95% cases are closed. About Rs 35,000 crore has been settled (for cases related to excise and service tax regime). The total value of cases was over Rs 2 lakh crore. There are another 5% cases which didn’t opt for the scheme, and they will be fought in the courts,” she had said, adding that most MSME disputes have been sorted out.

Meanwhile, there is a demand for an amnesty for customs tax as well. “A dispute resolution scheme under Customs, similar to the recently introduced Sabka Vishwas Scheme which got an overwhelming response from businesses, should garner appreciation especially from global businesses who have set up operations in India with outsourcing manufacturing processes to India for promoting the Make in India campaign,” Abhishek Jain, tax partner at EY India, said.
The two main components of Sabka Vishwas scheme were dispute resolution and amnesty. The first component was aimed at liquidating the legacy cases pending in litigation at various forums. The amnesty component of the scheme offered an opportunity to the taxpayers to pay the outstanding tax and be free of any other consequence under the law.

Further, the scheme offered relief to the tune of 70% if the tax demand involved Rs 50 lakh or less and 50% if it was more than Rs 50 lakh. The relief was 60% of the outstanding amount if it was Rs 50 lakh or less and 40% if it was more than Rs 50 lakh. Barring some exceptions, there was full waiver of interest and penalty along with exemption from prosecution in all these cases. Naveen Wadhwa, DGM, Taxmann, said: “A scheme in direct tax cases on the lines of Sabka Vishwas will surely help the government unlock massive amounts of revenue stuck in pending litigation. Due to pendency of tax appeals before various courts and tribunals, the realisation of tax revenue takes a longer time.”

The government had implemented two income disclosure schemes in FY17, one before demonetisation was announced and another after it ended. These schemes had yielded a total of Rs 21,000 crore to the government.

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