Vivad se Vishwas 2.0 and the Income-tax Act, 2025: Closed Scheme, Current Alternatives

Last Updated: 15 April 2026  |  Applicable From: Tax Year 2026-27 (1 April 2026 onwards)  |  Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026; Direct Tax Vivad se Vishwas Scheme, 2024 (Finance (No. 2) Act, 2024)

The Direct Tax Vivad se Vishwas Scheme, 2024 was the second iteration of the Government’s periodic “pay-and-close” dispute-resolution mechanism for direct tax appeals. Its purpose was the same as the 2020 original — to clear massive appellate backlogs by offering taxpayers a discounted, time-bound route to close pending disputes. For the taxpayers who opted in, the 2024 scheme was genuinely transformational. But the window closed in early 2025, and the Income-tax Act, 2025 that took effect from 1 April 2026 has not re-opened it. This article explains Vivad se Vishwas 2.0 as it operated, why it mattered, why it is now closed, and what happens to taxpayers today who are looking for similar relief. It also sets out how the Income-tax Act, 2025 has internalised the principles of efficient dispute resolution — through the e-Dispute Resolution Committee, the Dispute Resolution Panel, faceless appeals, the updated return route, and the compounding framework under Chapter XXII — even though no direct successor scheme has been enacted as of April 2026.

Table of Contents

1. Background: VsV 1.0 to VsV 2.0
2. Scheme structure and key definitions
3. Eligibility — who could file
4. Exclusions
5. Rate structure and amounts payable
6. Procedure and forms
7. Closure of the scheme and post-closure position
8. Current dispute-resolution options under the 2025 Act
9. Cost-benefit framework (historical and applied today)
10. Expert Insight
11. Key Takeaways
12. Frequently Asked Questions

1. Background: 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 that had built up over decades. 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. It was, by any measure, a large-scale operational and revenue success.

However, the backlog did not stay cleared. New appeals filed after the VsV 1.0 window, combined with unresolved legacy disputes, meant that by 2024 the pending-appeals pool had again reached levels that warranted intervention. The Finance (No. 2) Act, 2024 introduced Vivad se Vishwas 2.0 to address this renewed backlog. The 2024 scheme was broadly modelled on the 2020 scheme but with refinements learned from implementation experience — a differentiated rate structure for “new appellants” versus “old appellants”, clearer forms and procedural rules, and more explicit treatment of complex cases (loss years, MAT credit, recurring additions).

Key differences from VsV 1.0

• Specified date: 22 July 2024 (the date of introduction of the Finance Bill, 2024) — versus 31 January 2020 for VsV 1.0.
• Rate structure: A new-appellant versus old-appellant distinction and tighter early-bird cut-offs.
• Operational portal: Fully integrated with the e-filing portal, reducing the procedural friction encountered in VsV 1.0.

2. Scheme structure and key definitions

Vivad se Vishwas 2.0 was enacted as Chapter IV of the Finance (No. 2) Act, 2024 — not as an amendment to the Income-tax Act, 1961. It was a self-contained dispute-resolution statute with its own definitions, machinery, forms and finality provisions. Core features:

• Applicable to pending income-tax appeals as on the specified date (22 July 2024);
• Declarant files a declaration in Form 1 before the designated authority;
• Designated authority issues a Form 2 certificate specifying the amount payable;
• Declarant pays and files Form 3 proof of payment;
• Designated authority issues Form 4 final order closing the dispute;
• The appeal is deemed withdrawn from the date of Form 4.

3. Eligibility — who could file

The scheme covered any person — individual, HUF, firm, LLP, company, AOP, trust or any other assessee — with a pending appeal as on the specified date before:

• Commissioner (Appeals) or Joint Commissioner (Appeals);
• Income-tax Appellate Tribunal (ITAT);
• High Court;
• Supreme Court.

Appeals could relate to disputed tax, disputed penalty, disputed interest, disputed fee, or disputed TDS/TCS. Both assessee-filed appeals and Department-filed appeals were covered. Where the Department had filed the appeal (typically, CIT(A) had given relief and the Department had challenged it before the ITAT), the respondent assessee could opt in — this was the most attractive category, with only 50 per cent of disputed tax payable.

4. Exclusions

The following categories were expressly excluded from Vivad se Vishwas 2.0:

• Cases where prosecution had been instituted before the filing of the declaration;
• Cases involving undisclosed foreign income or assets under the Black Money Act, 2015;
• Cases involving COFEPOSA detention orders;
• Assessment or reassessment under the search-case provisions (sections 153A or 153C of the 1961 Act, with equivalents in the 2025 Act), where the disputed tax exceeded Rs 5 crore for any assessment year — unless the appeal had progressed to the ITAT or a higher forum;
• Cases where the assessment was based on information received under a tax information exchange agreement or DTAA.

5. Rate structure and amounts payable

The amounts payable depended on three factors: whether the dispute related to tax or to penalty/interest/fee only; whether the declarant was an “old appellant” or “new appellant”; and whether payment was made before or after the early-bird date notified by the CBDT.

5.1 Disputes relating to tax

Category	Before early-bird date	After early-bird date
Appeal by assessee — pending before CIT(A)/JCIT(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 in	50% of disputed tax	55% of disputed tax
New appellant (appeal filed after specified date)	110% of disputed tax	120% of disputed tax

5.2 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

5.3 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 — was adjusted against the amount payable under the scheme. Critically, the scheme explicitly provided that no refund would be granted of any amount paid in excess of the scheme payable. This was a key factor in the opt-in analysis: for taxpayers who had already paid the full disputed tax through recovery or otherwise, pursuing the appeal for a refund with interest under the 244A equivalent was often the better economic choice.

6. Procedure and forms

1. Form 1 — Declaration: Declarant filed the declaration form electronically through the income-tax e-filing portal, providing appeal details, computation of disputed tax, tax already paid and amount payable.
2. Form 2 — Certificate: Designated authority examined the declaration and issued a certificate specifying the amount payable. Any discrepancy between the declarant’s computation and the authority’s computation was highlighted here.
3. Form 3 — Proof of payment: Declarant paid the amount specified in Form 2 within the prescribed time and filed proof of payment.
4. Form 4 — Final order: Designated authority issued the final order. The appeal was deemed withdrawn from the date of Form 4. The declarant furnished proof of withdrawal of the appeal to the appellate forum.

Form 4 orders were final and not appealable. They could be challenged only by writ jurisdiction on grounds of fraud, mistake, or jurisdictional error.

7. Closure of the scheme and post-closure position

The Vivad se Vishwas 2.0 declaration window closed in early 2025. The CBDT had issued multiple extension notifications during the active phase to accommodate compliance, but no further extension was granted after the final closing date. From that point forward:

• No new Form 1 declarations can be filed under Vivad se Vishwas 2.0.
• Form 4 orders already issued under the scheme remain final and enforceable. Appeals closed by Form 4 cannot be re-agitated under any provision of the Income-tax Act, 2025.
• Appeals that were eligible for the scheme but in respect of which the declarant did not file a declaration revert to the ordinary appellate track under Chapter XVIII of the 2025 Act.
• The Income-tax Act, 2025 has not carried forward the Vivad se Vishwas machinery as a standing provision. The scheme was, and remains, a one-time statutory window.

8. Current dispute-resolution options under the 2025 Act

For taxpayers facing disputes today, the routes available under the Income-tax Act, 2025 are:

8.1 Regular appellate route (Chapter XVIII)

• Commissioner (Appeals) or Joint Commissioner (Appeals): First appeal against assessment, rectification, penalty, and certain other orders. Faceless by default under the 2025 Act.
• Income-tax Appellate Tribunal: Second appeal. Fact-finding tribunal whose factual findings are final.
• High Court: On substantial questions of law.
• Supreme Court: Special leave petition or direct appeal.

8.2 e-Dispute Resolution Committee

Small taxpayers with returned income up to Rs 50 lakh and variation proposed up to Rs 10 lakh can approach the faceless e-Dispute Resolution Committee, which can reduce or waive penalty and grant prosecution immunity subject to conditions. This is the closest functional parallel to Vivad se Vishwas-type relief available on a standing basis under the 2025 Act.

8.3 Dispute Resolution Panel

Eligible non-residents, foreign companies and transfer-pricing cases can approach the DRP before the assessment is finalised. Binding directions are issued within nine months.

8.4 Revision under the 264 equivalent

Where the order involves a clear error — wrong tax rate, ignored binding circular, denial of TDS credit — a revision petition before the Principal Commissioner is often faster and cheaper than a formal appeal.

8.5 Updated return (ITR-U equivalent)

The most important standing tool introduced by the 2025 Act. Finance Act, 2026 extended the window to 48 months from the end of the relevant tax year, with additional tax of 25 to 70 per cent depending on the stage. Unlike Vivad se Vishwas 2.0, which settled disputed appeals, the updated return allows a taxpayer to proactively disclose additional income before any dispute has arisen. See our detailed guide on updated returns under the 2025 Act.

8.6 Advance Pricing Agreement

For international-transaction pricing, APAs provide forward certainty and can resolve past disputes through rollback provisions.

8.7 Compounding of offences (Chapter XXII)

For prosecution exposure, compounding under the 279(2) equivalent — carried forward in Chapter XXII of the 2025 Act — allows closure of criminal proceedings on payment of charges. See our article on prosecution under Chapter XXII.

9. Cost-benefit framework (historical and applied today)

The analytical framework that applied under Vivad se Vishwas 2.0 — when to opt in, when to contest — remains useful for any tax-dispute strategy today, even without the scheme being open.

Factors that favour closing a dispute quickly

• Weak legal merits, no favourable precedent;
• Litigation fatigue — multi-year backlog at CIT(A) with no visible movement;
• Significant penalty exposure under the 270A equivalent and prosecution exposure under Chapter XXII;
• Management bandwidth and reputational cost exceeds the tax saving from winning;
• The case involves a factual rather than a legal issue, where the Department holds the stronger narrative.

Factors that favour contesting through the appellate route

• Strong legal merits, covered by favourable precedent;
• The case has precedent value for multiple years (recurring additions);
• The taxpayer has already paid the disputed tax — winning yields a refund with interest;
• The issue is purely legal — faceless appeal is cheap and the outcome is predictable;
• The taxpayer needs to protect reputation or professional standing by an acquittal on merits.

10. Related articles in the 2025 Act series

• Settlement Commission abolition and current options
• Prosecution under Chapter XXII of the 2025 Act
• Updated return (ITR-U) under the 2025 Act
• Interest provisions under the 2025 Act
• Under-reporting and misreporting of income under the 2025 Act
• Appeals to CIT(A) and ITAT under Chapter XVIII

Expert Insight

Key Takeaways

• Vivad se Vishwas 2.0 (Direct Tax Vivad se Vishwas Scheme, 2024) was enacted by the Finance (No. 2) Act, 2024 for pending income-tax appeals as on 22 July 2024.
• The declaration window closed in early 2025 and is not currently open. The Income-tax Act, 2025 has not re-enacted or extended it.
• Assessee appeals: 100 per cent of disputed tax (early-bird) or 110 per cent. Department appeals where assessee opts in: 50 per cent (early-bird) or 55 per cent. Penalty/interest-only disputes: 25 per cent (early-bird) or 30 per cent.
• The scheme did not grant prosecution immunity and did not permit refunds of amounts paid in excess of the scheme payable.
• Exclusions included prosecution cases, Black Money Act cases, COFEPOSA detention, certain high-value search cases at the CIT(A) level, and TIEA/DTAA-information cases.
• Form 4 orders already issued remain final and enforceable; they cannot be re-agitated under the 2025 Act.
• Under the Income-tax Act, 2025, the standing dispute-resolution options are faceless appeals, e-DRC, DRP, revision, APA and the updated return (48 months).
• The selective, per-appeal cost-benefit framework developed under Vivad se Vishwas remains the right approach to dispute strategy under the 2025 Act.
• No Vivad se Vishwas 3.0 has been notified as of 15 April 2026 — taxpayers should not plan around the expectation of a future scheme.
• Contact Virtual Auditor at +91 99622 60333 for dispute-resolution advisory under the 2025 Act.

Frequently Asked Questions

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