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What Is Unexplained Income And Investments In Income Tax Return Filing?


There could be instances where the you may have purchased an expensive car or a set of jewellery and not disclosed it in your accounts. However, in a bid to save taxes, you could come under the scanner of the Income Tax department and get into serious trouble.

What is unexplained income or investment?

What is unexplained income or investment?

Income made by an individual is categorized under five sections under the Income Tax Act in India- salary, house property, business/profession, capital gains and other income. The income tax department imposes tax on all the income pertaining to a particular financial year at predecided rates unless specifically exempted by law.

Even though an individual is required to offer tax for an income earned or received, there are instances when it is not done. Similarly, investments are made from unaccounted for cash among individuals (informally known as black money).

Knowing well that some taxpayers will try to evade tax liable on them, the IT department has some specific provisions and measures to be able to track such an income or investment and plug the loopholes in the system. There are specific sections under the Income Tax Act that deal with them.

These allow an income tax assessing officer to treat the income or investment as it should be when the taxpayer is not able to provide a proper explanation on the source of income or if the explanation is not satisfactory.

IT sections dealing with unaccounted income or investments

IT sections dealing with unaccounted income or investments

Section 68: This section deals with the cash credits made during a year into a taxpayer's account that he/she has no satisfactory explanation for.

Section 69: All unexplained investments like purchase of a property that are not recorded in the accounts of the tax payer and the source of income to fund such an expense is dealt with under this section of the IT Act.

Section 69A: Money, bullion, jewellery or any such valuable assets that are not fixed (unexplained money) that are not recorded.

Section 69B: When the value of the investment, cash, bullion or jewellery is not fully disclosed or if the assessing officer finds that the amount expended to make the purchase exceeds the number disclosed by the taxpayer.

Section 69C: This section deals with unexplained expenditures made by a taxpayer.

Section 69D: This section deals with the concept of "Hundi" despite the absence of it in our economy so as to fill any possible loophole. Any amount borrowed or repaid in the form of "Hundi" is covered is included in this section.

Consequences of not reporting them to the IT department

Consequences of not reporting them to the IT department

All the cash, investment or expenditure that constitutes as unexplained under the above mentioned sections of the income tax act are subject to taxes as applicable under section 115BBE.

With effect from 1 April 2013, "Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D.-(1) Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of-

(a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and

(b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a).

(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1)."

Earlier, unaccounted for income or investment was subject to taxes on as per tax rates applicable to the taxpayers in a way that basic exemption limit was applicable on them.

It is now changed to impose higher taxes irrespective of what tax slab the assess falls under. Deductions normally applicable on them will not be available on attempting to evade tax.

Further, a penalty will also be imposed under Section 271AAC for non-compliance.

Apart from the higher taxes, tax evasion is a criminal offence in India and there are changes that you could land in jail.

Considering the improved measures taken by the income tax department to keep tax evasion under check, it is wiser to report you income in the upcoming ITR filing for the FY 2018-19.

Read more about: itr income tax
Story first published: Friday, April 26, 2019, 15:06 [IST]
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