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In the last article we saw the broad mechanism of settlement of tax disputes under KVSS. One of the most important criteria of eligibility of the Scheme is the existence of 'tax arrears'. In this article, we shall discuss the various aspects of tax arrears which make it eligible for you to go under the Scheme.
The following make tax arrears exist against you:
- Tax, interest or penalty ought to have been determined as payable by you on or before March 31, 1998.
- Such tax, interest or penalty ought to be outstanding on the date you file the declaration under the Scheme.
Tax arrears include tax, interest or penalty. Tax, interest or penalty may be outstanding by themselves individually or together. That is, there might be only tax, only penalty or only interest outstanding against you. Or any two or all of them. Whatever is outstanding can be settled.
Tax includes income tax, gift tax, wealth tax, among others.
Tax includes surcharge which was chargeable in the past.
Tax includes additional tax which is levied in an intimation of summary assessment.
Tax, interest or penalty ought to be determined as payable on or before 31.3.1998. That is, such amount should be determined as payable in an order passed against you and in respect of which a demand notice is served.
The amount should be considered determined if the order is passed on or before 31.3.1998. It does not matter if the order was served on you after March, 1998 - it would still be tax arrears which can be settled under KVSS.
However, if the order is passed March 31, 1998 then the amount outstanding cannot be settled under the Scheme.
An order made before March 31, 1998 may have been in appeal. The appellate order may give some relief (or even enhance the income or tax). In such cases, it is the modified tax which will be considered to be tax arrears - provided however that such modification is done before your making a declaration under KVSS. It is, however, okay if the appellate order or the modification order is passed 31.3.1998. It is only the original order in which tax was determined that should have been before April 1, 1998.
The settlement of tax arrears under KVSS is year-wise. Thus, in a given year you may fulfill all criteria of eligibility and in another year you may not. You can take benefit of the scheme for the year in which you fulfill the criteria.
The tax arrears determined as above must have remained unpaid on the date of declaration. Thus, if you have been a good citizen and have paid the whole or any part of the demand, you would be a loser in the Scheme. Only the balance amount should be considered tax arrears. The Scheme makes it clear that if you have paid against outstanding demands, such payments --even if made under protest - shall reduce your tax arrears.
Payment also includes adjustment of any refunds to you against your demands.
The implication is that any amount paid by you will reduce your tax arrears and only the reduced arrears will be subjected to the benefits of the Scheme. The payments will, therefore, make you feel sorry. This, without any doubt, is an unfair provision.
What does it mean? It means that you ought not be paying any amounts hereafter if you desire to take advantage of the Scheme, which you should be. Any payment before the declaration will only harm, not help, you. You will, therefore, want tomake payment now.
It would also be advisable for the department to encourage taxpayers to go under the Scheme and not coercively collect the outstanding taxes
A question that has been nagging professionals is one of appropriation. When an amount is determined as payable by you, it might include tax, interest and penalty. If so, and if you make 'on account' payments, how should they be adjusted? You will want that first the payments are adjusted against tax so that the tax component gets reduced and you get a higher benefit under KVSS.
The government has officially clarified that your payments will first be adjusted against tax and then against interest and penalty.
However, this can create difficulty in some cases. If your payments exceed the tax component, then your entire tax will be wiped out and only interest and/or penalty will remain outstanding. If this happens, you suffer because under KVSS you will have to pay 50% of the outstanding interest or penalty and not 30% of the disputed income.
The clarification, therefore, works both ways.
The department has, of late, become extremely vigorous in its collection efforts. All outstanding arrears, including very old ones, are being culled out. And an extremely vigorous drive has started for collection. If these are settled under the Scheme, the department will be only too happy. If you have arrears and thought the department has forgotten, you might be in for a rude shock.
The Kar Vivad Samadhan Scheme, by all counts, is an extremely attractive scheme if you do have tax arrears which are in dispute. You should consider the Scheme very seriously - it might be the thing you have been waiting for.
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