1. Investigations and tax audits
    1. 1. What usually triggers a tax investigation/audit in your jurisdiction and which procedures can be used to limit or exclude a tax audit?
    2. 2. What is the general tax statute of limitations period in your jurisdiction (i.e. how far back can you be audited and reassessed before the tax administration becomes time-barred)?
    3. 3. Do the tax authorities have broad powers when they investigate or are they more limited? For example, can they operate raids, seizures, requests to third parties (like banks and employers) or any other strategies?
    4. 4. What are the rights of taxpayers and how can they defend themselves (with or without assistance) during a tax audit? Can they refuse to disclose certain information during audits (e.g. covered by confidentiality)?
    5. 5. What are possible tax penalties in your country? Are there also any payment interest and/or criminal charges? Can penalties be contested/negotiated?
  2. Administrative and Judicial Phases (first instance + appeals)
    1. 6. What are the typical steps and duration of administrative (i.e. pre-litigation before the tax administration) and judicial (i.e. before the tribunal/court system) tax litigation procedures in your jurisdiction?
    2. 7. Are there interim measures (i.e. deferral of tax payment while a dispute is pending) and/or alternative dispute resolution mechanisms?
    3. 8. Are tribunals and/or courts specialised in tax matters? Is there a formal appeal structure for tax disputes? How many levels are there (first instance, appeals, supreme court) and how long does each generally take?
  3. Trends and Tips
    1. 9. What recent hot topics and/or developments have influenced your tax dispute landscape locally?
    2. 10. In one sentence, as a takeaway, what would you recommend to parties facing a tax dispute in your country?

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Investigations and tax audits

1. What usually triggers a tax investigation/audit in your jurisdiction and which procedures can be used to limit or exclude a tax audit?

Certain tax legislations mandate audits beyond an income threshold. Apart from the statutory audits, the Authority may direct an audit or an investigation on issues such as:

  • specific intelligence
  • evidence from other investigations
  • fraudulent credits or refund claims
  • classification disputes
  • fraud
  • cash discoveries
  • non-disclosure of income sources
  • recording of false entry in books of accounts, etc.

Any challenge to a tax audit or an investigation can only be done in a Constitutional Court by way of writ remedy. However, in most cases, such a challenge is not successful unless there are glaring violations of settled legal principles during an audit or investigations.

2. What is the general tax statute of limitations period in your jurisdiction (i.e. how far back can you be audited and reassessed before the tax administration becomes time-barred)?

Depending on whether the infraction is under direct tax laws or indirect tax laws, the limitation to conduct assessments, investigations, audits etc., would typically differ. In regular cases, it is 2-3 years depending on the tax statute. However, in cases involving fraud, wilful misrepresentation or suppression, the limitation period under indirect tax laws extends to 5 years.

Similarly, under direct tax laws, if there is evidence of more than INR 5 million income escaping tax assessment, a reassessment notice under income tax laws can be issued to the taxpayer for up to 10 years from the end of the relevant assessment year.

3. Do the tax authorities have broad powers when they investigate or are they more limited? For example, can they operate raids, seizures, requests to third parties (like banks and employers) or any other strategies?

The authorities in India possess extensive investigative powers to ensure tax compliance and combat evasion. They can conduct raids if they have reason to believe that a taxpayer has failed/is unlikely to produce the necessary documents or has under declared its income or assets. During such operations, officers can enter and search premises, seize cash, jewellery and documents, access electronic records and record statements. They have national jurisdiction and broad powers including the power to summon, examine and arrest individuals in serious tax evasion cases. However, the exercise of powers must be on substantive ‘reasons to believe’, i.e. credible information and not mere suspicion.

4. What are the rights of taxpayers and how can they defend themselves (with or without assistance) during a tax audit? Can they refuse to disclose certain information during audits (e.g. covered by confidentiality)?

The tax authorities are generally required to maintain the confidentiality of taxpayer information. Indian taxpayers have very limited scope to refuse disclosure on confidentiality grounds. Moreover, not providing the correct information can lead to adverse consequences including best judgement assessments, penalties and potentially even prosecution.

In audits, the authorities issue objections based on the audit, and a response to this can be filed. All investigations culminate in a show cause notice, giving a fair opportunity to respond to allegations. However, during the recording of statements or other evidence, or during a raid, the taxpayer is typically not entitled to outside counsel. 

5. What are possible tax penalties in your country? Are there also any payment interest and/or criminal charges? Can penalties be contested/negotiated?

Penalties under the Income Tax law arise from non-compliance as mentioned earlier. They may be either fixed or calculated as a percentage of the tax due; and in serious cases, they may include prosecution. Interest is charged at 1% per month on the outstanding tax.

Goods and services tax (GST) penalties depend on the intent behind the default. For non-fraudulent cases, they start at 10%. For cases of fraud, they may extend up to 100% of the unpaid tax. Interest is charged at 18% per annum, calculated from the due date until the date of actual payment.

While there is limited scope to challenge an interest levy, taxpayers can challenge penalties by filing either an appeal or a writ. India presently lacks an avenue for negotiating penalties.

Administrative and Judicial Phases (first instance + appeals)

6. What are the typical steps and duration of administrative (i.e. pre-litigation before the tax administration) and judicial (i.e. before the tribunal/court system) tax litigation procedures in your jurisdiction?

In scrutiny cases, assessment of the filed return may be done separately by the authority, and thereafter a notice is issued in case of any discrepancy.

For direct taxes, the authority conducts scrutiny assessments; while for GST, assessments follow departmental audits. The response to these is by way of written replies, followed by a personal hearing. Once the assessing officer issues the final assessment order, it can be appealed to a higher authority – either the Appellate Commissioner or the Tribunals.

Subsequent appeals on substantial legal questions proceed to the High Court and, ultimately, the Supreme Court. Timewise, the entire spectrum of litigation may take 3-5 years.

7. Are there interim measures (i.e. deferral of tax payment while a dispute is pending) and/or alternative dispute resolution mechanisms?

Yes, India does provide interim relief measures in tax matters, which can be secured by payment of a certain percentage of the disputed tax. This is a compulsory payment which is done at the time of filing of the appeal. No coercive recovery can be done thereafter by the Tax Authority.

Alternatively, in cases of gross violations of settled principles and judicial precedents, a taxpayer may also approach the High Courts for interim reliefs.

8. Are tribunals and/or courts specialised in tax matters? Is there a formal appeal structure for tax disputes? How many levels are there (first instance, appeals, supreme court) and how long does each generally take?

Yes, India has dedicated tribunals:

  • ITAT is the dedicated tribunal for income tax matters
  • CESTAT functions as an appellate authority for disputes related to customs, now repealed laws such as excise, central sales tax and service tax
  • the Goods and Services Tax Appellate Tribunal is expected to become operational by the end of the financial year 2025 for tackling disputes under the GST regime.

Typically, after adjudication/assessment, either party can file appeals before the:

  • Appellate Authority (around 6-12 months)
  • Tribunal (6 months-2 years)
  • High Court and/or Supreme Court (anywhere between 3-5 years depending on the complexity of the matter).

9. What recent hot topics and/or developments have influenced your tax dispute landscape locally?

  • Digital business models beyond traditional brick-and-mortar operations are an issue for determining income characterisation, nexus and profit allocation without physical presence
  • GST treatment for cryptocurrencies remains hotly debated
  • Online gaming is also a major GST battleground, with authorities imposing 28% tax on the full value of bets, and the authorities issuing notices worth more than INR 1.12 trillion to gaming firms; the issue awaits final adjudication before the Apex Court
  • Related party transactions receive scrutiny under direct and indirect tax law
  • Transfer pricing issues, considering duplicate services and incidental benefits, also remain a roadblock for businesses.

10. In one sentence, as a takeaway, what would you recommend to parties facing a tax dispute in your country?

Engage expert tax lawyers early, maintain comprehensive documentation and communications to support your position, and stay updated on legal and procedural changes.