Amnesty schemes in India have their roots in the post-independence era when the first amnesty scheme ‘VDIS Tyagi’ was launched in 1951. However, this scheme failed because the taxpayers were suspicious about the assurances of immunity. In 1965 the government launched two Amnesty schemes – VDIS 60-40 Scheme, Block Voluntary Disclosure Scheme. Later around the period of emergency in 1975, the government introduced the Voluntary Disclosure Scheme. In 1997, the government launched the Voluntary Disclosure of Income Scheme, which allow reluctant taxpayers to disclose their wealth and income by paying a higher rate of tax and gain reprieve. However, this scheme allowed taxpayers to declare possessions at back-dated values which led to severe undervaluation as possessions were declared at ‘decade ago prices’. Despite this, the VDIS-97 is considered as the ‘most successful’ of all tax amnesty schemes of India.
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In recent years, the government has launched several amnesty schemes, such as IDS 2016 (Income Declaration Scheme), Sabka Vishwas – Legacy Dispute Resolution Schemein 2019 (SVLDRS), and Vivad se Vishwas introduced in the Union Budget of 2020-21. Similar to previous schemes, these schemes offer taxpayers limited-time opportunity to declare undisclosed income or assets and pay the associated taxes without facing prosecution and penalties. Further, various states such as Rajasthan, Maharashtra, Telangana and Kerala have also introduced amnesty schemes for the dues pending under the erstwhile indirect tax laws.
Timeline of the above amnesty schemes can be seen below:
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In India, amnesty schemes, also known as voluntary disclosure schemes, offer taxpayers the opportunity to declare previously undisclosed income and assets, and pay the corresponding taxes without facing penalties or prosecution. These schemes are designed to broaden the tax base, enhance compliance, and boost government revenue. By encouraging individuals to come forward and contribute to the formal economy, they aim to reduce tax evasion, integrate black money into the mainstream, and resolve longstanding tax disputes.
In July 2017, India’s fragmented indirect tax regime was unified under a single Goods and Service Tax (GST). As with any new system, implementation of GST faced transitional challenges. Even seven years after its introduction, GST framework continues to evolve, with frequent legislative and procedural changes, with GST Council addressing the issues from time to time. The initial period of implementation saw significant ambiguity, leading to numerous notices issued to taxpayers for tax demands, often due to procedural errors or differing interpretations of the provisions.
To tackle these issues, the GST Council, during its 53rd Meeting, recommended the introduction of an amnesty scheme. This scheme proposes the waiver of interest and penalties for demand notices issued under Section 73 of the CGST Act (i.e. excluding the cases involving fraud, suppression or wilful misstatement) for the fiscal years 2017-18, 2018-19 and 2019-20, if the full tax demanded is paid up to 31.03.2025. This scheme was subsequently introduced under Section 128A in the Union Budget 2024. However, the Union Budget 2024 did not specify the effective date for the scheme’s implementation, creating some ambiguity.
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Key portion of Section 128A has been reiterated below:
“128A.Waiver of interest or penalty or both relating to demands raised under section 73, for certain tax periods:
(1) Notwithstanding anything to the contrary contained in this Act, where any amount of tax is payable by a person chargeable with tax in accordance with, ––
(a) a notice issued under sub-section (1) of section 73 or a statement issued under sub-section (3) of section 73, and where no order under sub-section (9) of section 73 has been issued; or
(b) an order passed under sub-section (9) of section 73, and where no order under sub-section (11) of section 107 or sub-section (1) of section 108 has been passed; or
(c) an order passed under sub-section (11) of section 107 or sub-section (1) of section 108, and where no order under sub-section (1) of section 113 has been passed,
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pertaining to the period from 1st July, 2017 to 31st March, 2020, or a part thereof, and the said person pays the full amount of tax payable as per the notice or statement or the order referred to in clause (a), clause (b) or clause (c), as the case may be, on or before the date, as may be notified by the Government on the recommendations of the Council, no interest under section 50 and penalty under this Act, shall be payable and all the proceedings in respect of the said notice or order or statement, as the case may be, shall be deemed to be concluded, subject to such conditions as may be prescribed:…”
Applicability of Section 128A can be summarized as follows:
Further, if an officer has issued a notice under Section 74(1) but has been directed by the Appellate Authority or Appellate Tribunal to pass the order in accordance with the provisions of Section 73(1), then such cases will also be considered in (a) or (b) above and shall be eligible for amnesty scheme under Section 128A.
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For all the above cases, benefit under Section 128A shall be available only if the appeal or writ petition filed has been withdrawn by the taxpayer on or before the date to be notified.
Further, it is pertinent to note that the provisions of Sec 128A are not applicable in cases of erroneous refunds.
The taxpayer is required to pay the full amount of tax as per the notice or statement or order (as mentioned in the cases above) on or before the date, as maybe notified by Government, while the interest under section 50 and penalty imposed shall be waived. However, in cases where the interest and penalty has already been paid, no refund of the same shall be available.
Further proceedings under this section will be subject to the condition that additional tax amount, if any (determined by the Appellate Authority, Appellate Tribunal, court, or Revisional Authority or in cases where central tax officer has filed an appeal before the High Court or Supreme Court) must be paid within three months from the date of their order.
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On analysis we can see the certain time limit for the issue of various orders and appeals have already expired.
As a result of the above lapsed timeline, taxpayers will be unable to benefit from the amnesty scheme in above cases if they have already paid interest and penalty resulting from the orders issued u/s 73(9). However, there is a section of taxpayers who have only paid the tax demands and interest and penalty remains due. In such cases, the amnesty scheme may be opted for.
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Amnesty schemes generally are seen as a one-time clearance of disputed amounts in tax regimes. It also entails in reduction of litigation at Tribunal level and above. Considering, the nation is on the brink of seeing GST Appellate Tribunal go live, the scheme could prove to be beneficiary.
Despite their advantages, amnesty schemes are often viewed as detrimental to the economy because they may encourage dishonest taxpayers. This brings us to the ultimate debate – are amnesty schemes good for the country’s tax ecosystem? While it may guarantee quick tax collections for the Government and bring defaulters in tax net at no cost of investigations, it also is demoralising for honest taxpayers who pay interest on tax demand proactively.
Amnesty schemes encourage taxpayers in any country to ignore compliances and wait for amnesties. Time and again, tax experts have termed amnesty schemes as morally corrosive. It gives the right to dodge the bullet to people who have faltered on paying taxes.
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It is notable that in 1997 when the Government introduced VDIS scheme, the same was challenged on the grounds that it was discriminative against honest taxpayers. However, the Apex Court in the case of All India Federation of Tax Practitioners v. UOI [(1998) 2 SCC 161] upheld the constitutional validity of the amnesty scheme rejecting the contention that it was arbitrary and violative of Article 14 of the Constitution of India.
As far as the recent GST Amnesty scheme goes, the Government must clarify the following finer points while notifying the scheme:
(c) an order passed under sub-section (11) of section 107 or sub-section (1) of section 108, and where no order under sub-section (1) of section 113 has been passed,
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While it appears to be a miss from the revenue’s side, an alternative interpretation that arises is that in appeal and rectification cases, taxpayers may avail amnesty even in S. 74 cases which seems absurd. The revenue would have to come up with a clarification to avoid any confusion later.
As they say – the Devil lies in details, the above points and many other will be clarified once the procedure to opt for Amnesty scheme is prescribed.
Jigar Doshi
Founding Partner, TMSL
Yash Goenka
Associate Director, TMSL
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