Vivad se Vishwas Scheme

The Vivad se Vishwas Scheme is an Indian direct tax dispute settlement initiative administered by the Central Board of Direct Taxes (CBDT) to resolve pending income tax litigation. It allows taxpayers to settle pending appeals, writs, and objections by paying a defined portion of disputed taxes while receiving a complete waiver of interest, penalties, and immunity from prosecution.

How the Vivad se Vishwas Scheme Operates

Litigation under the Income-tax Act, 1961 has historically locked up substantial revenue while creating contingent liabilities for Indian enterprises. The Government of India established the Vivad se Vishwas framework to substitute protracted adversarial litigation with administrative finality. Following the original Direct Tax Vivad se Vishwas Act, 2020, the legislature reintroduced the mechanism as the Direct Tax Vivad se Vishwas Scheme, 2024 under Chapter IV (Sections 88 to 99) of the Finance (No. 2) Act, 2024.

Under this statutory framework, an eligible taxpayer files an irrevocable declaration before a Designated Authority, typically an officer of the rank of Commissioner or Principal Commissioner of Income Tax. By remitting the determined settlement amount, the declarant obtains full relief from statutory interest levied under Sections 234A, 234B, and 234C, complete waiver of penalties, and statutory immunity from prosecution for the settled issues. While direct tax controversies follow this CBDT framework, indirect tax disputes are addressed through distinct statutory measures, such as the Section 128A (GST Amnesty Scheme).

Eligibility Criteria and Statutory Exclusions

To access settlement under the scheme, a dispute must meet specific statutory benchmarks established under Section 89 of the Finance (No. 2) Act, 2024:

• Appeals, writ petitions, or Special Leave Petitions (SLPs) pending as of 22 July 2024 before the Joint Commissioner (Appeals), Commissioner of Income Tax (Appeals), Income Tax Appellate Tribunal (ITAT), High Courts, or the Supreme Court.
• Objections pending before the Dispute Resolution Panel (DRP) under Section 144C as of 22 July 2024, or cases where the DRP issued directions but the Assessing Officer had not yet completed the final assessment order.
• Revision petitions pending before the Principal Commissioner or Commissioner of Income Tax under Section 264 as of 22 July 2024.
• Orders passed on or before 22 July 2024 where the statutory time limit for filing an appeal had not expired on that date, provided the taxpayer subsequently filed the appeal within the prescribed limitation period without requiring condonation of delay, as clarified by CBDT Removal-of-Difficulty Order No. 8/2025.

Ineligible Disputes and Exclusions

Under Section 96 of the Finance (No. 2) Act, 2024, specific disputes cannot be settled under the scheme:

• Search and seizure assessments: Tax arrears relating to assessments framed under Section 153A, Section 153C, or Sections 143(3), 144, or 147 pursuant to searches initiated under Section 132 or requisitions under Section 132A are excluded entirely, with no monetary threshold exception.
• Undisclosed foreign income or assets: Disputes involving offshore assets or income governed by the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
• Prosecution cases: Matters where prosecution was instituted on or before the declaration date under the Indian Penal Code, the Bharatiya Nyaya Sanhita, the Prevention of Money Laundering Act (PMLA), or the Prohibition of Benami Property Transactions Act.
• Foreign exchange information: Assessments based on third-party information received from overseas tax authorities under Section 90 or Section 90A double taxation avoidance agreements.

Settlement Rates Under the Vivad se Vishwas Scheme

The payable amount is governed by Section 90 of the Finance (No. 2) Act, 2024. The statute classifies declarants into old appellants and new appellants, applying differential rates based on when the declaration is filed. A new appellant is a taxpayer whose appeal was filed after 31 January 2020. An old appellant is a declarant whose dispute had already been pending on or before 31 January 2020 and remained unresolved.

Statutory Reductions for Departmental Appeals

Where the Income Tax Department filed the appeal or petition, the settlement rate payable by the taxpayer is reduced by 50%. The same 50% discount applies when the taxpayer filed the appeal on an issue where an unreversed favourable ruling from the ITAT or a High Court exists in their favour.

Illustrative Settlement Calculation

Assume an enterprise categorized as a new appellant faces a corporate tax addition resulting in INR 50,00,000 in disputed tax, INR 20,00,000 in accrued interest under Section 234B, and INR 25,00,000 in penalty under Section 270A, representing a total demand of INR 95,00,000.

• Litigation trajectory: The enterprise carries an ongoing contingent liability of INR 95,00,000, with interest continuing to compound during appellate delays.
• Resolution under the scheme: Under the standard declaration window for a new appellant, the company remits 100% of the disputed tax (INR 50,00,000).
• Financial relief: The remaining INR 45,00,000 comprising interest and penalties is fully extinguished, and all penalty and prosecution proceedings for that assessment year are terminated.

Procedural Stages and Statutory Forms

The settlement workflow is administered digitally through the official Income Tax Portal across four formal stages notified under the Direct Tax Vivad se Vishwas Rules, 2024:

1. Form-1 (Declaration and Undertaking): The declarant submits Form-1 electronically, specifying the disputed income, tax arrears, and appellate details, accompanied by an undertaking waiving rights to pursue alternative legal remedies. A separate Form-1 is required for each distinct appeal, except where the assessee and the department cross-appealed the same assessment order.
2. Form-2 (Certificate of Determination): Within 15 days of receiving Form-1, the Designated Authority verifies the computations and issues Form-2, certifying the precise sum payable.
3. Form-3 (Intimation of Payment): The taxpayer pays the determined amount within 15 days of receiving Form-2. The declarant submits Form-3 along with payment challans and proof of application for withdrawal of the appeal or writ petition.
4. Form-4 (Final Settlement Order): After verifying Form-3, the Designated Authority issues a conclusive settlement order in Form-4, granting formal immunity from penalties, interest, and prosecution.

The following workflow illustrates the interaction between the taxpayer and the tax department from initial declaration to final order.

flowchart TD
    A["Taxpayer Submits Form-1"] --> B["Authority Reviews Declaration"]
    B --> C["Authority Issues Form-2"]
    C --> D["Taxpayer Pays and Withdraws Appeal"]
    D --> E["Taxpayer Submits Form-3"]
    E --> F["Authority Issues Form-4 Order"]

Strategic Considerations for Corporate Finance Teams

Resolving historical tax controversy provides corporate leadership with balance sheet certainty, reduces legal expenditure, and simplifies due diligence for corporate restructuring. Nevertheless, post-settlement tax governance requires institutional discipline. Finance teams must ensure that current assessment interactions under the Faceless Assessment Scheme and pending disputes under the Faceless Appeal Scheme are grounded in robust documentation and reconciled ledgers.

MYND helps organizations establish end-to-end accounting integrity and tax compliance through structured Finance & Accounts Outsourcing, Record to Report Outsourcing, and proactive Compliance Management Services. Managing over $20B in throughput and processing more than 20M transactions annually with a 99% compliance achievement record, we support corporate controllers in maintaining audit-ready records that prevent tax discrepancies before they escalate into litigation.

Frequently Asked Questions

Can an enterprise settle specific additions while litigating others in the same appeal?

No. Partial settlement of an appeal for a given assessment year is not permitted. A declaration must encompass the entire appeal and all additions adjudicated within that order, preventing piecemeal dispute resolution.

Does a settlement under the Vivad se Vishwas Scheme establish a binding legal precedent?

No. Section 95 of the scheme clarifies that settling a dispute does not constitute a binding precedent for subsequent assessment years. Neither the taxpayer nor the department is deemed to have conceded any question of law or fact for future periods.

What are the consequences of missing the 15-day payment window after Form-2?

If the declarant fails to deposit the determined tax and submit Form-3 within 15 days of receiving Form-2, the initial Form-1 declaration lapses and becomes void. The original appellate proceedings before the court or tribunal revive automatically.

Are Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) disputes eligible?

Yes. Demands raised under Section 201 for failure to deduct or remit TDS, as well as orders under Section 206C for TCS defaults, are eligible for settlement, provided an appeal or objection was pending as of the cut-off date.

Conclusion

The Vivad se Vishwas Scheme provides Indian corporate taxpayers with a structured, predictable route to resolve legacy income tax disputes, eliminate crippling interest and penalties, and mitigate prosecution risks. By evaluating unresolved appeals against defined statutory rates and maintaining rigorous financial reporting controls, corporate leaders can protect enterprise value and redirect organizational focus toward commercial growth.