CAG flags delays of up to 1,398 days under Direct Tax Vivad Se Vishwas scheme

The Comptroller and Auditor General of India (CAG) has found long delays and wrong tax computations in the way the Income Tax Department ran the Direct Tax Vivad se Vishwas Scheme, 2020. The findings are in CAG Report No. 8 of 2026, a subject-specific compliance audit of the scheme under the Department of Revenue (Direct Taxes), which was tabled in Parliament on 12 August 2026. The most striking number is a gap of up to 1,398 days before Consequential Effect Orders were issued in settled cases.

The Vivad se Vishwas Scheme, 2020 let taxpayers settle pending income-tax disputes by paying an amount determined by a Designated Authority. The audit covered the period July 2023 to September 2024 and examined 5,212 cases handled by 174 Designated Authorities (DAs), according to the CAG press brief on Report No. 8 of 2026.

Where the delays were

The scheme worked through a chain of forms. The DA had to issue Form-3, the certificate of the amount payable, within 15 days. The taxpayer paid and filed Form-4, after which the DA issued Form-5 to close the dispute. The CAG found delays at every stage:

The CEO delay matters most for taxpayers. Until the assessment record reflects the settlement, the old demand can stay open on the department's system and refunds for other years can be held back or adjusted.

Wrong rejections and wrong computations

The audit also found errors in the substance of the settlements:

• Wrongful rejection: in 10 cases in three States, the DA rejected valid declarations from eligible taxpayers.
• Incorrect amount payable: in 208 cases with a tax effect of ₹423.47 crore across 21 States, the DA determined the amount payable incorrectly.
• Interest not withdrawn: in 55 cases with a tax effect of ₹1,168.27 crore across 13 States, the department did not withdraw interest it had earlier paid to the taxpayer, resulting in a revenue loss.
• Refund adjustment: in 14 cases in Gujarat, refunds of other assessment years were adjusted against the very demands that were under dispute.

The press brief also puts the scheme in context. Of about 4.15 lakh pending disputes involving ₹10.09 lakh crore, declarations were filed for 1.32 lakh cases (31.8%). About 1.06 lakh cases were settled, with ₹71,924 crore recovered.

What the CAG has recommended

The CAG has asked the Central Board of Direct Taxes (CBDT) to:

• prescribe timelines for issuing forms and orders under such schemes;
• auto-populate data in the forms to cut manual errors, and tighten computation checks;
• ensure uniform treatment across charges and strengthen IT system controls;
• capture vital information in the forms, and identify and recover the undue losses found;
• verify assessment records before granting refunds;
• run threshold-based internal audits; and
• issue standard operating procedures before any future settlement scheme is launched.

What taxpayers and CAs should do

Taxpayers who settled under the 2020 scheme should confirm that each settled demand now shows as closed on the e-filing portal and in the jurisdictional records. If a Form-5 or a Consequential Effect Order is still pending years after payment, a written request to the assessing officer, with copies of Form-3, Form-4, the payment challans and Form-5, is the first step. Any refund of another year that was adjusted against a settled demand should be followed up with the same papers.

The findings are also relevant for any new dispute settlement scheme. Keeping a dated file of the declaration, the amount computed, the payments made and every order received makes it easier to spot a computation error or a missing order and to get it corrected.

Updated on 27 September 2026: Added the official CAG Report No. 8 of 2026 and its press brief; clarified that the 1,398-day delay relates to Consequential Effect Orders; added the figures on Form-3 and Form-5 delays, wrongful rejections, the ₹423.47 crore computation errors, the ₹1,168.27 crore interest not withdrawn, and the CAG's recommendations.