Tax revenue is the backbone of government finances, yet a significant portion of this revenue remains unrealized. When funds are locked in legal and administrative limbo, it creates a fiscal drag that stifles public infrastructure and social security initiatives.
Increased but unrealized tax revenues remained flat ₹38.4 trillion at the end of FY25 – up 30.5% from last year. Vishwas has grown nearly 200% in 2020 since the Vivad Direct Tax regime was introduced.
However, 23 marked a clear inflection point, with the proportion of “tax not in dispute” rising significantly following the government’s voluntary settlement schemes. Its share grew from less than 20% in FY20 to more than 50% by FY25.
While this marks a move towards reducing the backlog of income tax litigation, providing a solution to both taxpayers and the government, the ‘tax in dispute’ remained elevated – up 16.2% year-on-year in FY25. To put the number in context, the tax in question increased by ₹2.5 trillion, which is about 6.6% of the approx ₹38 trillion in gross tax collection for FY25.
Experts noted that the Vivad Se Vishwas program has played a major role in reducing disputes. The first round of the program almost equalized ₹1 trillion in disputed direct taxes in more than 130,000 cases, according to Finance Ministry data. The second program was launched in 2024.
“Faceless assessments and appeals have reduced jurisdictional bias and to some extent improved the quality of assessments (resulting in fewer disputes),” said Aditi Goyal, partner in the tax practice at Trilegal.
Although there are signs of a progressive compositional shift, experts are still cautious as the amount in dispute continues to grow. “The non-disputed tax has increased sharply, so the disputed amount appears lower in relative terms. But in absolute terms, the disputed tax has not come down,” said Sandeep Bhalla, partner, Dhruva Advisors.
In the 2026 budget, the government announced further measures to facilitate tax compliance. These include easier filing, longer deadlines and lighter penalties under the new Income Tax Act 2025, which will come into force from April.
Of the disputed figure, corporate taxes still make up the lion’s share – 51% in FY25 – while income taxes account for 37%. The contested share of income tax has fallen below 40% since FY23.
The corporate tax share has risen to more than 50% since FY24. Experts say that the constant increase in the number of insolvency and bankruptcy cases over the years has limited the state’s ability to collect and implement assessed taxes. Data from the Insolvency and Bankruptcy Board of India (IBBI) shows that insolvency proceedings have risen sharply over the past decade, from just 37 cases in FY17 to 733 in FY25.
