Tax Disputes: India’s Struggle with Amnesty Schemes
By: Admin Date: January 27, 2025 Category: TAX News Reading Time: 4 Minutes
India has a long history of tax amnesty schemes, from the “Tyagi scheme” of 1951 to the “sixty-forty scheme” of 1965 and the wealth disclosure scheme of 1985. Notable initiatives like the Voluntary Disclosure of Income Scheme (VDIS), 1997, and Vivad se Vishwas, 2020, have had mixed success. These schemes aim to encourage taxpayers to declare unreported income and settle disputes with reduced penalties or taxes. However, they often face criticism for creating a “moral hazard” and allegedly incentivizing non-compliance.
History and Evolution of Amnesty Schemes
India’s tax amnesty schemes date back to the early 1950s. Over the decades, these initiatives have evolved to address the changing dynamics of tax compliance. While schemes like VDIS 1997 and Vivad se Vishwas 2020 were designed to resolve disputes, they have also been criticized for their unintended consequences.
Amnesty Schemes: Legal and Practical Challenges
While courts have upheld the legality of such schemes, citing the legislature’s domain over economic policies, the effectiveness of these programmes in reducing tax disputes remains debatable.
Diminishing Utility
Frequent amnesty schemes dilute their impact and fail to address the root causes of disputes. Recent initiatives like Direct Tax Vivad Se Vishwas 2.0 and the GST Amnesty Scheme from Budget FY24 have seen limited success. A new Customs amnesty scheme is now being demanded, indicating a lack of lasting solutions.
Mounting Litigation Backlog
Over 500,000 direct tax cases are pending with the first appellate body, the Commissioner of Income Tax (CIT). High-stakes cases involving amounts exceeding ₹5 crore often escalate to the Supreme Court, taking an average of 15 years for resolution. Disputes in direct taxes alone amount to ₹31 lakh crore (9.6% of GDP), up from ₹20.8 lakh crore (8.9% of GDP) in 2021-22.
Impact on Fiscal and Economic Health
Blocked Fiscal Resources
Unresolved tax disputes account for over 60% of the Union Budget’s size. This is a concerning figure for a country with limited fiscal resources and a low tax-GDP ratio.
Private Capital at Risk
Tax demands require taxpayers to deposit 20% of the outstanding amount before appealing to higher authorities. This causes significant working capital constraints, especially for businesses.
What Needs to Change?
Tax disputes are inevitable, but their volume and impact can be minimized with the following steps:
Pragmatic Tax Assessments
Tax officials should focus on fair assessments rather than aggressive revenue collection. This can reduce unnecessary litigation.
Settlement at Early Stages
Introduce mechanisms to settle disputes at the assessment stage. A peer review system can support accountability.
Threshold Reforms
Allow dispute resolution up to a certain threshold without escalating to higher tribunals. This can ease the burden on the judiciary.
Streamlined Amnesty Schemes
Amnesty programmes should be strategic and infrequent to maintain their credibility and effectiveness.
Conclusion
India’s tax dispute backlog is a significant roadblock to economic efficiency, fiscal sustainability, and private investment. With Budget FY26 on the horizon, policymakers must prioritize institutional reforms and pragmatic policies to resolve disputes efficiently. By addressing these systemic issues, India can foster a more equitable, transparent, and growth-oriented tax regime.
