Executive summary

The income tax dispute resolution mechanism in India is multilayered and time consuming, affecting the environment for doing business in India. The country has an extensive tax appeals system that goes up to the Supreme Court of India. However, this system is subject to overuse. The income tax department is a major generator of tax appeals filed under the current dispute resolution procedure. Compared with other countries, India’s tax litigation numbers, pendency, and resolution times are significantly higher. India’s income tax department has a very low rate of success in its tax appeals compared with other countries. To address this issue, one of the measures the government has proposed is a direct tax dispute resolution scheme for pending tax appeal cases through a legislation, 'The Direct Tax Vivad se Vishwas Bill 2020' introduced in Parliament. 'Vivad se Vishwas' translates to 'From Dispute to Trust'. In order to improve the current proposal in the Bill (which treats taxpayer and departmental appeals on the same footing for payment of disputed taxes), this paper suggests a graded system of taxes to be paid by the taxpayer in case of departmental appeals. A suggestion to reduce tax disputes in the future is to grant only the taxpayer (instead of both the taxpayer and the tax administration) the statutory right to file an appeal to a tax tribunal. This would be a step towards the government’s stated objective to build greater trust with taxpayers.