CAG Audit Report No. 8 of 2026: Systemic Lapses Uncovered in Direct Tax Vivad se Vishwas Scheme, 2020
Overview of the Audit
On 12 August 2026, the Comptroller & Auditor General of India (C&AG) laid before Parliament its Audit Report No. 8 of 2026, focusing exclusively on the implementation of the Direct Tax Vivad se Vishwas Scheme, 2020 (hereinafter referred to as the DTVsV Scheme). The audit was conducted as a Subject Specific Compliance Audit (SSCA), spanning from July 2023 through February 2024. A supplementary review of Information Technology (IT)-related concerns was further undertaken between March 2024 and September 2024. Findings from the audit were subsequently placed before the Central Board of Direct Taxes (CBDT) for discussion in September 2025.
The DTVsV Scheme was conceived as a dispute resolution framework with a threefold purpose — reducing the massive backlog of income tax litigation, enabling timely revenue mobilisation for the exchequer, and offering assessees a structured exit from prolonged disputes through certainty, immunity from penalty and prosecution, and savings in time and legal costs.
The Scale of Pending Litigation That Prompted the Scheme
To appreciate the significance of this audit, it is important to understand the litigation landscape that gave rise to the DTVsV Scheme. As on 31 January 2020, disputed direct tax arrears locked across various appellate fora amounted to a staggering ₹10.09 lakh crore, spread across 4.15 lakh appeal cases. This figure represented approximately 88.7 per cent of the entire direct tax collection of ₹11.37 lakh crore recorded during FY 2018–19 — a proportion that underscored the urgency of legislative intervention.
These appeals were pending at multiple levels of the judicial and quasi-judicial hierarchy, including before the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal, various High Courts, and the Hon'ble Supreme Court of India — regardless of whether the associated demand was still outstanding or had already been deposited.
Key Outcome: Out of 4.15 lakh cases with ₹10.09 lakh crore in locked revenue, applications for settlement were received in 1.32 lakh cases (31.8%) involving ₹0.99 lakh crore (9.8%) of the total disputed amount. As on 22 July 2022, 1.06 lakh cases (89.1%) stood settled, and ₹71,924 crore (72.3%) of the applied amount was collected after statutory waivers of interest and penalty.
Despite these achievements, the audit uncovered significant procedural shortcomings that undermined the full potential of the Scheme.
Scope of the Audit
The SSCA covered a total of 5,212 cases across 174 Designated Authorities (DAs), encompassing the following categories:
- Cases where Form-5 (Order for full and final settlement of disputes) had been issued
- Cases where Form-4 (Intimation of payment and proof of withdrawal) was awaited from the assessee
- Cases where the assessee's declaration was rejected by the Designated Authority
- Cases with excess or short payments made via Form-4 relative to the amount computed by the DA in Form-3
- Cases pending before the Hon'ble Supreme Court involving disputed tax/TDS/TCS/Penalty/Interest of ₹1 crore and above
- High-value cases where the disputed payable amount exceeded ₹10 crore