Income under the Income Tax regime are classified under five heads namely Salary, Profits/Gains From Business Profession, Income from House Property, Capital gains and the residual category i.e. Income from other sources. Every income which is not specifically exempt is liable to income tax in the Financial year in which it is received/ accrued.
However, to avoid taxes, people tend to adopt unfair and unethical measures leading to evasion of taxes. To curb such measures, there are certain penal provisions under the Income Tax Act,1961. This article deals with the treatment of unexplained Cash Credits.
Treatment of Unexplained Cash credits:-
Every cash credit in the books must be offered as income and liable to be taxed unless exempted or for which satisfactory explanation can be provided as to why they should not be taxed. As per section 68, any sum credited to the books and not offered to tax shall be treated as unexplained cash credits and shall be taxable in the financial year in which such credit is made. However, the following condition must be satisfied:-
- No explanation about the source or nature of credit has been offered by the taxpayer.
- If explanation is offered but the same is found unsatisfactory by the Assessing officer.
Taxability of Unexplained Cash Credits:-
To discourage people from the aforesaid practice and put curbs on the same, Unexplained cash credits are taxed at a very high rate of Tax. They are taxed at a flat rate of 60% plus 25% surcharge and 6% penalty resulting in a tax rate of 83.25%.
Points to be noted:-
- Unexplained Cash credit includes unexplained cash, gold, jewellery, investments, etc.
- Penalty of 6% shall not be applicable in case the cash credit of which the source cannot be explained has already been offered to tax in the return of income.
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