Do you have unexplained cash credit in your bank account the previous year? Then, be ready to be assessed thoroughly by the tax officer and pay heavy tax on such sum if found out by the IT department.
Any gold, jewellery and other valuable items, for which you are unable to justify the source of cash and assets undeclared to the government, you will be taxed heavily at 83% on your income.
What is "unexplained cash credit?"
A cash entry in the books for which a taxpayer has no legit explanation about the nature and source of the income, or if the assessing officer is unsatisfied with the explanation offered then the money deposited in the bank account is called 'unexplained cash credit', which is taxable under Section 68 of the Income Tax Act.
According to Section 69A of Income Tax Act, if you possess any gold, money, jewellery or other valuable article in the previous year that is not recorded in your books, and you do not offer any explanation about the nature and source of such income or in case the assessing officer is not satisfied by your explanation, then the undeclared cash, gold and jewellery will be considered to be the income of the taxpayer for last year.
IT department imposes heavy tax on unexplained cash credit
Such unexplained sources of income will attract a high income tax at the rate of 83.25% (60% tax + 25% surcharge+ 6% penalty). However, you will be exempted from paying the 6% penalty if the cash credit has already been included in return of income, and tax has been paid on or before the end of the relevant previous year.
Post demonetisation in 2017 and the overnight ban imposed by the Government to stop printing and usage of Rs 500 and Rs 1,000 currency notes, many taxpayers made huge cash deposits in their bank accounts which came under the scrutiny of the Income Tax Department.
The IT Department then offered a deal to the taxpayers to settle the litigation by paying their taxes on time, and such undisclosed incomes without any further questioning on the source of such incomes in the previous year.
As recently, the Modi Government introduced the Faceless assessment scheme for taxpayers, which means there will be no physical interface between the taxpayers and the IT department. The Faceless appeal service will ensure complete transparency in workings and come into effect from September 25, 2020.