Time to be honest & Tax Compliant

Time to be honest & Tax Compliant


Tax Compliant

Time to be honest & Tax Compliant

“The power to tax is the power to destroy.” –  John Marshall

30% is the highest rate of tax for honest taxpayers. Dishonesty is now penalized rigorously in the Income Tax Act. The tax rate now could be as high as 138% of income i.e., cost of tax could exceed the amount of income. Income Tax Act has been wildly amended during the post demonetization. And the penal provisions are stretched extensively to cover varied situations.

First of all, taxpayers need to know that normal income of an individual is taxable on the basis of applicable tax slab i.e., No tax for income up to Rs. 2.50 (Rs.  3 Lakh for senior citizens & Rs. 5 Lakh for very senior citizens), 5% for Income up to Rs. 5 Lakh, 20% for income in between Rs. 5-10 Lakh and 30% on income above Rs. 10 Lakh.

However, there are certain incomes which are taxable straight @ 60% and not on the basis of tax slab mentioned above. This income are referred to as “Section 69, 69A, 69B, 69C, 69D” income, as under;

 a] Section 68- Cash credit:
Unexplained cash credit (i.e., credit entry in the books of the taxpayer which cannot be explained or justified) will be taxable u/s 68. It includes accommodation entry taken by the taxpayer, share application money received by closely held company if it failed to prove the nature & source of shareholder, etc will be covered by section 68.

b] Section 69- Unexplained Investment:
All investments which remained unrecorded in the books of the taxpayer are taxable u/s 69. It includes unrecorded property, jewellery, FDR etc.

c] Section 69A- Unexplained Money, etc:
If taxpayer is found to be the owner of any unrecorded money, Bullion, Jewellery or other valuable articles then such amount would be taxable u/s 69A. It will include purchase of unrecorded jewellery/ornaments/money etc found in the possession of taxpayer.

d] Section 69B- Amount of Investment, etc not fully disclosed in books of account:
If taxpayer is found to be the owner of investment which is not fully or completely disclosed in the books then such amount would be taxable u/s 69B. It would include under-billed transaction, suppressed investment factory/immoveable property etc.

e] Section 69C- Unexplained Expenditure, etc

If taxpayer has incurred any expenditure which is not fully or truly recorded in the books of the taxpayer. Then it will be taxable u/s 69C. It would include unrecorded foreign tour expenses, unrecorded marriage/birthday party expenses etc.

Taxability of Income referred to in section 68,69, 69A,69B,69C,69D:

All income of the nature referred above is taxable u/s 115BBE. It is liable to be taxed flat @ 60% whether it is voluntarily disclosed by the taxpayer while filing income tax return or assessed by the Income Tax Officer during the course of assessment. Such flat tax rate of 60% is further subject to surcharge of 25% & Health & Education cess of 4% (3% till AY 2018-19), making effective tax rate @ 78% (60%+15%+3%).

Further, if the amount of income is assessed by Income Tax Officer (& not disclosed by the taxpayer voluntarily while filing his return) then penalty @ 10% would also be leviable [Section 271AAC)].

A Stiffer penalty Provisions is there where such income is found during the course of search & seizure (i.e., Income Tax Raid). If such income is found during Income Tax Raid, then apart from the tax and surcharge as mentioned above, penalty @ 30% of income will be levied if taxpayer admits the tax evasion & pays the tax. In other cases (i.e., addition is not admitted during raid) the penalty would be @ 60% [u/s 271AAB].  With increase in the cess from 3% to 4% now. The final tax rate could go up to 138% (including all).

Further, taxpayer cannot avail the benefit of basic exemption limit benefit i.e. Even if no other taxable income is there, basic exemption limit cannot be reduced from above income. No deduction in respect of any expenditure or allowance [or set off of any loss] shall be allowed to the assessee in computing his income referred to in clause (a) of sub-section (1) of Section 115BBE.

Tax Compliant

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