Vivad Se Vishwas 2.0: Direct Tax Dispute Resolution Scheme
Quick Answer
The Direct Tax Vivad Se Vishwas Scheme, 2024 (VsV 2.0) — introduced by the Finance (No. 2) Act, 2024 — allows taxpayers with pending income tax appeals to settle disputes by paying the disputed tax. Penalty and interest are waived (fully or partially). The scheme covers appeals pending before CIT(A), ITAT, High Court, or Supreme Court as on the specified date. It is the successor to the original Vivad Se Vishwas scheme of 2020, with modified rates and an expanded scope. At Virtual Auditor, we evaluate every pending appeal for VsV 2.0 eligibility, compute the cost-benefit, and handle the declaration filing end-to-end. CA V. Viswanathan (IBBI/RV/03/2019/12333) personally reviews each case to ensure the scheme is genuinely beneficial before recommending it — because in many cases, pursuing the appeal is the better financial decision.
Definition — Direct Tax Vivad Se Vishwas Scheme, 2024: A statutory dispute resolution scheme enacted as Chapter IV of the Finance (No. 2) Act, 2024. It provides a mechanism for declarants (taxpayers with pending income tax appeals) to settle disputes by filing a declaration and paying the specified amount. Upon payment and issuance of the order by the designated authority, the appeal is deemed withdrawn, and the matter attains finality.
Definition — Disputed Tax: The income tax (including surcharge and cess) payable by the declarant on the disputed income as determined by the Assessing Officer in the order that is the subject of the pending appeal. Where the dispute relates to reduction of a loss or depreciation, the disputed tax is the tax that would be payable if the disputed reduction were given effect to.
Definition — Declarant: A person who files a declaration under the scheme. The declarant must be the appellant in the pending appeal (whether the appeal was filed by the assessee or by the Department). Where the Department has filed the appeal, the assessee (respondent) can also opt for the scheme.
Definition — Designated Authority: The Principal Commissioner or Commissioner of Income Tax designated by the CBDT as the authority to process declarations and issue orders under the scheme.
Background: From VsV 1.0 to VsV 2.0
The original Direct Tax Vivad Se Vishwas Act, 2020 (VsV 1.0) was enacted to resolve the massive backlog of direct tax litigation. As of March 2020, over 5 lakh direct tax appeals were pending across CIT(A), ITAT, High Courts, and the Supreme Court — involving disputed tax of over Rs 10 lakh crore. VsV 1.0 achieved significant success — over 1.5 lakh declarations were filed, resolving disputes involving approximately Rs 99,000 crore of disputed tax.
However, the backlog continued to grow. New appeals filed after the VsV 1.0 window, combined with unresolved legacy disputes, meant that by 2024, the number of pending direct tax appeals had again reached levels that warranted intervention. The Finance (No. 2) Act, 2024 introduced VsV 2.0 to address this renewed backlog.
Key Differences from VsV 1.0
- Specified date: VsV 2.0 covers appeals pending as on the date notified by the CBDT (22-07-2024 for most categories), whereas VsV 1.0 covered appeals pending as on 31-01-2020.
- Rate structure: VsV 2.0 introduces a differentiated rate for “new appellants” (those who filed appeals after 22-07-2024 but whose underlying order was passed before the specified date) versus “old appellants.”
- CBDT notifications: The CBDT has issued notifications specifying the appointed date, forms, and procedural rules for VsV 2.0, building on the experience and issues that arose during VsV 1.0 implementation.
Eligibility: Who Can File a Declaration
Covered Cases
The scheme covers any person (individual, HUF, firm, LLP, company, AOP, trust, or any other assessee) who has a pending appeal as on the specified date before:
- Commissioner of Income Tax (Appeals) — CIT(A) or Joint CIT(A)
- Income Tax Appellate Tribunal (ITAT)
- High Court
- Supreme Court
The appeal can be in respect of: disputed tax, disputed penalty, disputed interest, disputed fee, or disputed TDS/TCS. Both assessee appeals and Department appeals are covered. Where the Department has filed the appeal, the assessee (respondent) can opt for the scheme — this is particularly relevant where the CIT(A) has given relief and the Department has challenged it before the ITAT.
Exclusions
The following categories are excluded from VsV 2.0:
- Cases where prosecution has been instituted before the date of filing of the declaration.
- Cases involving undisclosed foreign income or assets under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
- Cases involving detention orders under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act (COFEPOSA).
- Cases where assessment or reassessment has been made under Section 153A/153C in consequence of a search under Section 132 or requisition under Section 132A, and the disputed tax exceeds Rs 5 crore for any assessment year — unless the appeal is pending before the ITAT or higher forum.
- Cases where information has been received under a tax information exchange agreement (TIEA) or Double Taxation Avoidance Agreement (DTAA), and the assessment is based on such information.
Expert Insight — CA V. Viswanathan
The exclusion for search cases with disputed tax exceeding Rs 5 crore is significant — it prevents high-value evasion cases from using the scheme to obtain easy closure. However, note that this exclusion does not apply if the appeal has progressed to the ITAT or a higher forum. This means that if your search case appeal is pending before the ITAT (and not just CIT(A)), you may still be eligible even if the disputed tax exceeds Rs 5 crore. We have seen assessees strategically ensure their appeals reach the ITAT stage before opting for the scheme. At Virtual Auditor, we evaluate every search case for this nuance before advising on eligibility.
Amount Payable: Rate Structure
The amount payable under VsV 2.0 depends on three factors: (a) whether the dispute relates to tax or to penalty/interest/fee; (b) whether the declarant is an “old appellant” or “new appellant”; and (c) whether payment is made before or after the early-bird date notified by the CBDT.
Disputes Relating to Tax (Disputed Tax Cases)
| Category | Before Early-Bird Date | After Early-Bird Date |
|---|---|---|
| Appeal by assessee — pending before CIT(A) | 100% of disputed tax | 110% of disputed tax |
| Appeal by assessee — pending before ITAT | 100% of disputed tax | 110% of disputed tax |
| Appeal by assessee — pending before HC/SC | 100% of disputed tax | 110% of disputed tax |
| Appeal by Department — assessee opts for scheme | 50% of disputed tax | 55% of disputed tax |
| New appellant (appeal filed after specified date) | 110% of disputed tax | 120% of disputed tax |
Disputes Relating to Penalty, Interest, or Fee Only
| Category | Before Early-Bird Date | After Early-Bird Date |
|---|---|---|
| Appeal by assessee | 25% of disputed penalty/interest/fee | 30% of disputed penalty/interest/fee |
| Appeal by Department | 25% of disputed penalty/interest/fee | 30% of disputed penalty/interest/fee |
Credit for Tax Already Paid
Any tax already paid by the declarant — whether as self-assessment tax, advance tax, TDS, or tax paid pursuant to the assessment order — is adjusted against the amount payable under the scheme. If the amount already paid exceeds the amount payable under VsV 2.0, no refund of the excess is available. This is an important consideration: if you have already paid (or been forced to pay through recovery) a significant portion of the disputed tax, opting for the scheme may cost you very little additional outlay while giving you finality.
Process: Filing the Declaration
Step 1: File Form 1 (Declaration)
The declarant files Form 1 (the prescribed declaration form) before the designated authority. The form requires: details of the pending appeal (appeal number, forum, assessment year), computation of the disputed tax, details of tax already paid, and the amount payable under the scheme. The form is filed electronically through the income tax e-filing portal.
Step 2: Certificate by Designated Authority (Form 2)
The designated authority examines the declaration, verifies the computation, and issues a certificate in Form 2 specifying the amount payable. If there is a discrepancy between the declarant’s computation and the designated authority’s computation, the authority will indicate the correct amount. The declarant then pays the specified amount.
Step 3: Payment and Filing of Proof (Form 3)
The declarant pays the amount specified in Form 2 and files proof of payment in Form 3. Upon receipt of Form 3 with proof of payment, the designated authority issues an order in Form 4, which constitutes the final settlement order. The appeal is deemed withdrawn from the date of this order.
Step 4: Withdrawal of Appeal
The declarant must furnish proof of withdrawal of the appeal to the designated authority. If the appeal is before the ITAT, High Court, or Supreme Court, the declarant or their counsel must file a withdrawal application before the respective forum. The scheme provides that the appeal shall be deemed withdrawn on the date of issuance of Form 4, regardless of when the formal withdrawal is recorded by the appellate forum.
Cost-Benefit Analysis: When to Opt for VsV 2.0
Factors Favouring VsV 2.0
- Weak merits: If the legal or factual grounds of your appeal are weak and the probability of success is low, paying 100% of disputed tax (with penalty and interest waived) is better than losing the appeal and paying 100% tax plus penalty under Section 270A (which can be 50% to 200% of tax) plus interest under Section 234A/234B/234C.
- Litigation fatigue: If the appeal has been pending for years with no resolution in sight (CIT(A) backlogs often exceed 5 years), the time value of money and management bandwidth consumed by the dispute may exceed the cost of settlement.
- Department appeal cases: Where the Department has appealed and you need to pay only 50% of disputed tax, the scheme is highly attractive — you are effectively getting a 50% discount on the tax that the Department claims is due.
- Penalty/interest-only disputes: At 25% of the disputed amount, these are almost always worth settling under VsV 2.0.
Factors Against VsV 2.0
- Strong merits: If your appeal is covered by favourable precedent (jurisdictional High Court or Supreme Court decisions in your favour), pursuing the appeal is likely to result in a full deletion of the addition. Paying 100% disputed tax when you have a high probability of paying zero is a poor financial decision.
- Precedent value: If your case involves a novel legal issue and a favourable ITAT or High Court decision would benefit you for multiple years (recurring additions), the precedent value of winning the appeal may exceed the cost of litigation.
- Already paid the tax: If you have already paid the entire disputed tax (through recovery or otherwise) and the disputed amount is large, you get no refund of the excess under VsV 2.0. In this case, pursuing the appeal and winning could result in a refund with interest under Section 244A.
Summary
Vivad Se Vishwas 2.0 under the Finance (No. 2) Act, 2024 is a one-time dispute resolution scheme for pending income tax appeals. Declarants pay the disputed tax (100% for assessee appeals, 50% for Department appeals) to obtain finality, with penalty and interest waived. Penalty-only disputes settle at 25%. Exclusions apply for prosecution cases, Black Money Act cases, and certain high-value search cases. The scheme does not provide prosecution immunity. Virtual Auditor conducts a case-by-case cost-benefit analysis before recommending VsV 2.0 — because opting for the scheme when you have a strong appeal is a financial mistake. For an assessment of your pending appeals, call +91 99622 60333 or visit our income tax appeal page.
CBDT Notifications and Procedural Rules
The CBDT has issued multiple notifications operationalising VsV 2.0. These notifications specify:
- The appointed date from which declarations can be filed.
- The specified date for determining pending appeals (22-07-2024 — the date of introduction of the Finance Bill).
- The early-bird date before which payment attracts the lower rate.
- The last date for filing declarations.
- The prescribed forms (Form 1 through Form 4) and the electronic filing procedure.
- The computation methodology for disputed tax in complex cases (loss cases, MAT credit cases, cases involving multiple assessment years).
The CBDT has also issued circulars addressing FAQs and practical difficulties encountered during the implementation of VsV 1.0 — such as treatment of interest under Section 234A/234B/234C, adjustment of pre-paid taxes, and cases where partial relief was granted by CIT(A).
Frequently Asked Questions
Q: What is the Vivad Se Vishwas 2.0 scheme?
It is the Direct Tax Vivad Se Vishwas Scheme, 2024, introduced by the Finance (No. 2) Act, 2024. It allows taxpayers with pending income tax appeals to settle disputes by paying the disputed tax amount. Penalty and interest are waived in full or in part depending on the category and timing of payment.
Q: Who is eligible for VsV 2.0?
Any person with a pending income tax appeal before CIT(A), ITAT, High Court, or Supreme Court as on the specified date (22-07-2024). Both assessee-filed and Department-filed appeals are covered. Exclusions apply for prosecution cases, Black Money Act cases, COFEPOSA detention cases, and certain high-value search cases at the CIT(A) level.
Q: Does VsV 2.0 provide immunity from prosecution?
No. The scheme settles the tax dispute and results in withdrawal of the appeal, but it does not grant immunity from prosecution under the Income Tax Act. If prosecution is already instituted, the case is excluded from the scheme entirely.
Q: Can I get a refund if I have already paid more than the amount due under VsV 2.0?
No. The scheme explicitly provides that no refund shall be granted of any amount paid in excess of the amount payable under the scheme. This is a critical factor in the cost-benefit analysis — if you have already paid the disputed tax through recovery or otherwise, you may be better off pursuing the appeal for a refund with interest.
Q: Can I opt for VsV 2.0 for some assessment years and continue the appeal for others?
Yes. The scheme operates on a per-appeal basis. If you have appeals pending for multiple assessment years, you can opt for VsV 2.0 for the years where the cost-benefit is favourable and continue the appellate litigation for the years where you have strong merits. This selective approach is often the optimal strategy.
Q: What does Virtual Auditor charge for VsV 2.0 advisory and filing?
Cost-benefit analysis per assessment year: from Rs 10,000. Declaration filing (Form 1) and follow-up through Form 4: from Rs 25,000. Volume discounts available for multiple years. Contact us at +91 99622 60333 or see our pricing page.
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