Taxpayers applying for VSVS 2.0 will be required to pay a percentage of the disputed amount, depending on the nature of the tax arrears and the timeline within which the application under the Scheme is made (as summarized in the table below) and withdraw their pending appeals or writs or special leave petitions (“SLP”) etc., as the case may be. Notably, the Scheme makes a distinction between old pending matters (i.e., where appeal(s) have been pending before the same forum since on or before January 31, 2020) (“Old Appellant”) and new matters (i.e. where appeals have been pending after January 31, 2020) (“New Appellant”) for the purpose of quantifying the amounts payable under the Scheme.

In cases where a dispute relates to reduction in the amount of business losses or unabsorbed depreciation or MAT credit, to be carried forward, an option is provided to the taxpayer to either – (a) pay tax on such disputed business loss, unabsorbed depreciation or MAT credit and continue to carry forward such business losses or unabsorbed depreciation or MAT credit without any reduction; or (b) carry forward a reduced amount of business losses or unabsorbed depreciation or MAT credit, as the case may be (without any payment of additional taxes).

The benefits of VSVS2.0 will not be available for appeals emanating out of search operations or foreign undisclosed income or assets, or information received under a tax treaty or international tax information exchange agreement, or where taxpayer is being prosecuted under tax or other prescribed criminal and other laws.

Importantly, no refund can be sought by a taxpayer of amounts paid under VSVS2.0. However, where the amount deposited by the taxpayer prior to opting for the Scheme is in excess of the amount payable under the Scheme, such excess amount will be refunded by the tax department without any interest.

Key benefits of opting for VSVS2.0 include early settlement of pending appeals along with an immunity from interest, penalty and prosecution. Further, settlement of an appeal under the Scheme will not act as an estoppel or amount to taxpayer conceding any tax position. In cases where taxpayers have substantial business losses, unabsorbed depreciation or MAT credit etc., or cases where the odds of success are marred by conflicting judicial opinion, it may be worthwhile to consider opting for VSVS2.0.

Therefore, while VSVS2.0 provides for an opportunity for taxpayers to cease litigation and buy peace of mind, decision to opt for the Scheme should be informed and nuanced. Taxpayers should not adopt a broad brush approach and should do a cost benefit analysis considering facts and circumstances of each pending appeal, evaluating merits of the issues involved, in order to determine if it would be beneficial for them to opt for the Scheme or to continue to litigate for a better outcome. That said, VSVS2.0 is poised to be a win-win for the tax department as well as the taxpayer.

This article was originally published in BW Legal on 21 November 2024 Co-written by: Gouri Puri, Partner; Rahul Yadav, Counsel; Suyash Sinha, Principal Associate. Click here for original article

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