New Delhi: Finance minister Piyush Goyal on Thursday said the higher threshold for filing appeals in tax disputes announced on Wednesday will eliminate tens of thousands of pending tax disputes, which clog the judicial system but account for a very small part of tax dues.

Goyal said that despite withdrawing a large number of appeals, the amount involved in litigation would drop by just about 5,600 crore: 4,800 crore in the case of direct taxes and about 800 crore for indirect tax disputes.

The idea is to give relief to as many taxpayers as possible, especially where the amounts involved are small. Goyal said the step was taken after it came to light that 66% of the pending tax disputes by number, across various tribunals and courts, including the Supreme Court, account for a mere 1.8% of the 7.6 trillion involved in litigation.

“It has been noted that often, the cost of litigation turns out to be more than the recovery amount, because the percentage of recovery is also small," said Goyal.

Considering the revised monetary threshold for filing appeals, the revenue department will drop 41% of all direct tax cases, or 26,812 cases, which represent 0.82% of the total tax amount in litigation.

In case of indirect taxes, 18% of all cases, representing 1.45% of the disputed tax amount, would be withdrawn, the finance minister added.

The Narendra Modi-led government had promised a non-adversarial tax regime when it came to power in 2014 and took steps to reduce tax disputes, including those related to cross-border transactions within large corporate groups, which had seen an increase in previous years. One common issue for disputes between the authorities and taxpayers is tax exemption.

In recent years, the Central Board of Direct Taxes has instructed field officers not to routinely file appeals in disputes. It has also set annual targets for commissioners handling appeals, the first level of appeal for a taxpayer, to decide on cases. The indirect tax administration, too, has taken steps to cut down on litigation. For one, the tax authority has stopped pursuing a case if it lost it in two stages of appeal.

Pranav Sayta, tax partner, EY India, said the new tax appeal norms would significantly help in reducing litigation. “It will not only help taxpayers by helping resolve some of the pending disputed matters, but will also enable the tax administration to focus on more important matters, rather than spread their energy on a plethora of small matters."

The increase in the threshold for filing appeals in the apex court was changed from 25 lakh to 1 crore.

For tribunals, it was doubled from 10 lakh to 20 lakh, and for high courts, the threshold is now 50 lakh instead of 20 lakh