In charts: From disputes to closures, the changing face of Indian tax compliance

Subscribe to enjoy similar stories. Tax revenues are the backbone of government finances, yet a significant portion of these revenues remains unrealised. When funds are locked up in legal and administrative limbo, it creates a fiscal drag that stifles public infrastructure and welfare initiatives.

Tax revenue raised but not realized stood at ₹38.4 trillion at the end of FY25—30.5% higher than last year. It has grown nearly 200% since the introduction of the Direct Tax Vivad se Vishwas Scheme in 2020. However, FY23 marked a clear inflection point, with the share ‘tax not under dispute’ rising significantly following the government's voluntary settlement schemes.

Its share rose from less than 20% in FY20 to more than 50% by FY25. While this marks a shift towards reducing pending income tax litigation, providing resolution to both taxpayers and government, ‘tax under dispute’ has stayed elevated—rising 16.2% year-on-year in FY25. To put the number in context, tax under dispute increased by ₹2.5 trillion, which is about 6.6% of the about ₹38 trillion in gross tax collections for FY25.

Experts noted Vivad Se Vishwas Scheme played a major role in reducing disputes. The first round of the scheme settled nearly ₹1 trillion in disputed direct taxes across over 130,000 cases, according to finance ministry data. A second scheme was launched in 2024.

“Faceless assessments and appeals have reduced jurisdictional bias and improved the quality of assessments to some extent (leading to fewer disputes)," said Aditi Goyal, partner, tax practice, at Trilegal. While there are signs of a progressive compositional shift, experts are still cautious since the amount under dispute has kept rising. "The tax which is not under dispute has