- 30-Apr-2025
- Personal Injury Law
Yes, taxpayers in India can negotiate their tax dues during litigation with the tax authorities, but this is typically done through formal settlement mechanisms or alternative dispute resolution options. Negotiating tax dues during litigation is not always straightforward, but it can be beneficial in certain circumstances where both the taxpayer and the authorities are willing to reach an agreement. Various mechanisms like settlement schemes, arbitration, and direct negotiations are available to resolve tax disputes outside of full-fledged litigation.
The Income Tax Act offers provisions for settlement in certain types of disputes, where taxpayers can negotiate to reduce or settle their tax dues through a formal process.
The Income Tax Settlement Commission (ITSC) is a mechanism provided under Section 245C of the Income Tax Act. It allows taxpayers to approach the commission to settle their cases by voluntarily disclosing additional income and paying taxes and penalties.
The Settlement Commission assesses the case and, if both parties agree, may approve a settlement, helping avoid prolonged litigation. The Commission's decision is final and binding once approved.
For international tax disputes or cases involving transfer pricing, taxpayers may use the Mutual Agreement Procedure (MAP). This process allows the taxpayer and tax authorities of the relevant countries to negotiate and settle disputes.
The MAP can result in an agreement to resolve tax issues without going through prolonged litigation. India has Double Taxation Avoidance Agreements (DTAAs) with many countries that facilitate this type of settlement.
In some cases, taxpayers may directly negotiate with the tax authorities during litigation, especially if the dispute involves smaller amounts or issues of technical interpretation. The taxpayer can present arguments or offer a partial payment or settlement to resolve the matter.
This can be done informally, or the taxpayer may approach the tax appellate authorities or jurisdictional officers to explore the possibility of a compromise settlement.
Occasionally, the Indian government may introduce tax amnesty schemes where taxpayers are given a chance to pay their dues at a reduced penalty or interest rate. These schemes allow taxpayers to negotiate their tax dues and avoid prolonged litigation by settling their liabilities.
The Sabka Vishwas Scheme (2020), for example, was an amnesty program under the Goods and Services Tax (GST) law that provided relief to taxpayers by reducing penalties and interest for outstanding dues.
Even during litigation, taxpayers can negotiate payment terms with the authorities. This may include extending the time for payment of the tax dues or agreeing to pay the tax amount in installments. This negotiation can be particularly helpful for small businesses or individuals facing financial difficulties.
Post-liberalization tax reforms and growing focus on tax compliance have seen a more flexible approach toward negotiating payment terms during litigation.
As part of the government's initiative to streamline tax administration, the National Faceless Assessment Centre (NFAC) enables taxpayers to resolve disputes more efficiently without face-to-face interactions.
The NFAC allows for online communication between taxpayers and tax authorities, offering a mechanism for amicable settlement of disputes and facilitating negotiations over disputed dues.
In some cases, courts may encourage taxpayers and tax authorities to resolve their dispute before proceeding with a full trial. Courts may propose judicial mediation or settlement conferences, where the parties can discuss a settlement and avoid the costs of prolonged litigation.
A court-approved settlement can help avoid further litigation and lead to the closure of the case with mutually agreed terms.
A small business in India is involved in a tax dispute with the Income Tax Department over the calculation of its taxable income. The business, struggling with cash flow, approaches the Income Tax Settlement Commission to negotiate a settlement. After disclosing additional income and agreeing to pay the tax along with penalties, the Settlement Commission approves a reduced penalty and the matter is resolved without further litigation.
Taxpayers can indeed negotiate their tax dues during the course of litigation through various formal settlement mechanisms such as the Income Tax Settlement Commission, Mutual Agreement Procedure, and direct negotiations with the tax authorities. These avenues provide taxpayers with opportunities to resolve disputes amicably and avoid prolonged litigation. However, the scope for negotiation largely depends on the nature of the dispute and the willingness of both parties to reach a settlement.
Answer By Law4u Team
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