Want to know what is the procedure or the treatment if you have unexplained cash credit in your bank accounts under section 68. Here is the full explanation of section 68 that what are the actions that could be taken if you have unexplained cash credit in your bank accounts.
1. Background Of Unexplained Cash Credit Under Section 68
Income Tax is imposed on five kinds of income which can be — salary, property, business/profession earnings, capital gains, and income from different sources. Each of the income groups manages earnings income, except capital gains. Capital profits deal with taxation on capital advantage. Capital income generally isn’t taxable unless specifically caused in the tax brackets. Any income that’s made by a taxpayer must be offered to taxation in the fiscal year in which it’s earned/received.
It’s a rather well-known fact that individuals have a tendency to locate and embrace tax-evading steps to conserve tax outflow and this contributes to the buildup of black cash. Thinking about the improved financial standing over a time period, tax-evading measures also have been rising with enormous cash available with taxpayers. Therefore, it will become imperative for the authorities to handle such tax evasion and deliver all of the money into the tax bracket which has been/being escaping tax levy.
The government lately has come with numerous steps like demonetization, Income Disclosure Scheme (IDS), etc.. Aside from the aforesaid steps, the Income Tax Act has different provisions to plug loopholes and monitor unexplained money credit, sour investment, etc..
Unexplained Cash Credit under Section 68
Charge of any amount to the citizen needs to be given to taxation unless it’s specifically exempted according to tax provisions. If such credit isn’t offered to taxation from the taxpayer, a citizen must provide an explanation as to why the exact same isn’t offered to taxation and what’s the source of this credit. Knowing the origin of income is equally applicable as the exact same could be belonging to a third individual (i.e. any individual apart from the taxpayer) and may need to be taxed at the hands of the third person. It may need to be taxed at the hands of the next person because he may have redirected the funds to the citizen with the goal of evading taxes.
Thus, Section 68 believes any amount credited in the books of a citizen in any fiscal year and not currently offered to taxation, as income of taxpayer during such fiscal year when the following conditions are fulfilled:
- The taxpayer provides no explanation regarding the nature and origin of this credit; or
- The explanation provided by citizens about the character and origin of this credit isn’t satisfactory in the view of the analyzing officers.
Such credit is known as unexplained cash credit.
3. Special Provision in the Event of Corporate Taxpayers
- The person in whose name such number is listed in the novels of such firm features explanation regarding the nature and origin of such amount imputed; and
- The assessing officer is of the view that such an explanation is acceptable.
On the other hand, the aforementioned specific provision won’t apply in the event the individual in whose name such sum is listed in the novels of these companies is a venture capital fund or a venture capital firm according to Section 10(23FB).
Particular provision was created for closely held company citizens so as to prevent any tax evasion by businesses which reveal the titles of non-existing shareholder/third celebration as having paid the business share associated cash that’s a mechanism for parking unaccounted cash in these businesses that aren’t subject to strict regulation under company law terms compared to widely held businesses.
4. Unexplained Cash Credit Taxability
As mentioned unexplained cash credit is treated as earnings in the year in which it’s obtained. Unexplained cash credits have been refundable at a flat rate of 60% without providing any advantage of basic exemption limitation and no matter the tax slab. The surcharge is levied at 25% plus a penalty of 6 percent. The last tax rate comes to 83.25percent (such as cess). No deduction/allowance is permitted and no reduction could be set off from these unexplained cash credit that is regarded as income.
The penalty isn’t enforced if unexplained cash credit is currently contained in the yield of income and taxation on the exact same is paid on or prior to the end of the fiscal year.
5. Points To Be Noted Carefully
- It’s suggested to accept payments through account payee cheque or demand draft which allows the taxpayer to understand the identity of heirs.
- The assessing officer will request for a variety of details like mode of payment, bank accounts of the creditor evidencing that the transaction/cash flow announcement of the creditor. It’s highly advisable to accumulate speech /PAN of the depositor so as to collate required records as and when necessary. Loose sheets or sheets of paper can’t be termed as publication since they may be easily detached and replaced.
- Novels of accounts where unexplained cash credit is located need to be of the citizen.
If you want to research more about the Unexplained Cash Credit Then you can navigate to this site http://www.incometaxindia.gov.in/Tutorials/43-%20cash%20credit.pdf
FAQs (Frequently Asked Questions)
What is Unexplained Cash Credit?
As mentioned unexplained cash credit is treated as earnings in the year in which it has been obtained. Unexplained cash credits are taxed at a flat rate of 60% without providing any advantage of basic exemption limitation and no matter the tax slab. The surcharge is levied at 25% plus a penalty of 6 percent.
What is Section 68 of Income Tax?
Based on Section 68 of Income Tax Act 1961, in which any amount is located credited in the books of an assessee preserved for any former year, and also the assessee provides no explanation regarding the character and origin of the exact same or the explanation provided by him isn’t satisfactory in the view of A.O., the amount so imputed.
What is unaccounted money?
In India, the black currency is capital made in the black market, where income and other taxes have never been paid. Additionally, the unaccounted money that’s hidden from the tax administrator is known as black cash. … The whole number of black currency deposited in overseas currencies Indians is unknown.
What is Section 68 of the Income Tax Act?
Based on Section 68 of Income Tax Act 1961, at which any amount is found imputed in the books of an assessee preserved for any former year, and also the assessee provides no explanation regarding the character and origin of the exact same or the explanation provided by him isn’t satisfactory in the view of A.O., the amount so imputed.