Tax dispute resolution scheme to take effect from tomorrow

The Direct Tax Dispute Resolution Scheme, which seeks to resolve cases pending in various courts, tribunals, arbitrations or are in mediation under the Bilateral Investment Protection Agreement (BIPA), will take effect from tomorrow.

The scheme provides an opportunity for settlement of cases emanating from retrospective amendment of tax laws, by asking companies to pay the basic tax demand and get waiver on interest and penalty.

Experts view the scheme as a big step towards tax reform and hope that it would act as a breather for companies like Vodafone and Cairn, which have been facing multi-billion dollar tax liability following retrospective tax amendments made in 2012.

The one-time tax dispute resolution scheme "shall come into force on June 1, 2016 and declarations under this scheme may be made on or before December 31," said a finance ministry statement, adding that the Central Board of direct Taxes (CBDT) has notified the rules and forms on May 26.

Besides this scheme, the 6 per cent Equalisation Levy, which will apply on cross border digital transactions, too will come into force from tomorrow. The rules with regard to applicability of equalisation levy were notified by the revenue department earlier in the month, the statement said.

In order to provide a stable and predictable taxation regime, Finance Minister Arun Jaitley in Budget 2016-17 came out with this Scheme.

"In order to give an opportunity to the past cases, which are ongoing under the retrospective amendment, I propose 'One Time' scheme of dispute resolution for them in which subject to their agreeing to withdraw any pending case lying in any Court or tribunal or any proceeding for arbitration, mediation, etc under BIPA, they can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived," Finance Minister Jaitley had said in his Budget 2016-17 speech.

As regards Equalisation Levy, it will apply at 6 per cent on services pertaining to cross border digital transactions. The levy will only apply to business to business transactions.

At present, equalisation levy is leviable only on payments relating to online advertisements, said C A Gupta, Partner, Deloitte Haskins and Sells.

In order to tap tax on income accruing to foreign e-commerce companies from India, the Finance Act 2016 said a person making payment to a non-resident (who does not have a permanent establishment) exceeding in aggregate Rs 1 lakh in a year will withhold tax at 6 per cent of gross amount paid, as equalisation levy.