You won't only have to pay tax on unexplained and unaccounted income and investments at substantially higher rates, but you may also have to face penalty and prosecution, depending on the case.
Have you purchased any high-value jewellery, luxury car or a piece of property and not disclosed it properly in your books of accounts, or you are not willing to disclose your expenses which you incurred during your foreign trip last year? Then be aware that by not disclosing such incomes, investments or expenditures to the Income Tax Department in a bid to save tax, you are inviting trouble for yourself. For, you won’t only have to pay tax on such unexplained and unaccounted investments, incomes and expenses at substantially higher rates, but you may also have to face penalty and prosecution, depending on the case.
In fact, as per the Income-Tax Act 1961, there are various sections which cover such unexplained and unaccounted money, investments etc, which include Section 68, 69, 69A, 69B, 69C & 69D, which you need to be aware of. Let us go through these sections one by one:
What it means & what you should do about it in your ITR?
In case you have credited any sum in the books of accounts maintained for any previous year and you are not able to explain the source as well as nature of such income or the A.O. finds that explanation is vague/ not satisfactory, then such an income will be charged to tax in your hands for that particular financial year.
If you have made any investment like buying a land etc in any financial year which have not been recorded in the books of accounts and you are not able to explain the source as well as the nature of such investments or the A.O. finds that explanation vague/ not satisfactory, then such investments will become taxable as your deemed income for that financial year.
(Unexplained money etc)
If you own money, bullion, jewellery or any other valuable thing & such an item is not recorded in your books of accounts. Also, during investigation, you are not able to offer proper explanation regarding income source of such acquisitions or the A.O. finds explanation to be unsatisfactory, then such money and value of bullion, jewellery etc will be included in your taxable income for such financial year.
(Investments not fully disclosed in books)
If you have made any investment or found to be the owner of money, bullion, jewellery etc & A.O. finds that the amount expended exceeds the value recorded in the books of accounts, then such excess value will become taxable in your hand in that financial year, if any explanation is not offered or it is found to be unsatisfactory by A.O.
If you have incurred any expenditure & are not able to explain the source of such expenditure or such explanation is vague as per A.O, then such expenditure amount will be added to your income & taxed in that financial year.
Also, you will not be allowed to claim deduction of any expense incurred against such income.
(Amount on Hundi)
The concept of Hundi no longer works in the current economy. But still it is covered under the Income Tax law with an aim to fill any loophole.
Basically, if you have borrowed or repaid any amount in “Hundi form”, then such an amount, whether borrowed/repaid, will be included & taxed in your hand in that financial year.
“All the above income as per Section 68, 69, 69A, 69B, 69C, 69D will be taxable under Sec 115BBE. This section says that such income will be taxed @ 60%. This tax rate shall be further increased by surcharge @ 25% & cess @3%. Net taxable rate will be 77.25% (i.e. 60% + 25% of 60 + 3% of total),” says CA Abhishek Soni, Founder, tax2win.in.
From Financial Year 2018-19, however, the rate of cess has been increased to 4%.
Moreover, penalty under Section 271AAC can also be levied upon you in case of non-compliance. The penalty amount will be 10% of tax payable as per Sec 115BBE.
Therefore, “looking at the strict policies adopted by the government against black money, it is highly advisable to follow the laid-down rules and regulations. Otherwise, you could be inviting troubles in the form of penalties and prosecution,” informs Soni.
As it is time to file income tax return (ITR), go ahead and pay tax on any unaccounted income and investment, and then also disclose them properly in your income tax return. Else, be prepared to face the taxman’s wrath, if caught later. Don’t forget, the Big Brother is already watching you!