Understanding Section 68 of Income Tax Act 1961
The Income Tax Act of 1961 governs the taxation of individuals and entities in India. It has several provisions that help the government to collect taxes from individuals and businesses effectively. One such provision is Section 68 of the Income Tax Act, which deals with unexplained cash credits.
What is Section 68 of the Income Tax Act 1961?
Section 68 of the Income Tax Act 1961 is a provision that deals with cash credits in the books of accounts of a taxpayer. According to this section, if a taxpayer is unable to explain any cash credit in his/her books of accounts, the amount of such credit can be deemed as the income of the taxpayer for the relevant financial year.
This section is applicable to all taxpayers, including individuals, Hindu Undivided Families (HUFs), companies, and firms.
Understanding the key terms in Section 68
Before we dive deeper into Section 68, it is essential to understand some key terms used in this provision. These terms are:
Cash Credit – Cash credit refers to any amount that is credited to the books of accounts of a taxpayer, which cannot be explained or is unexplained.
Books of Accounts – Books of accounts refer to any books, documents, or records that a taxpayer maintains to record financial transactions.
Undisclosed Income – Undisclosed income refers to any income that a taxpayer has earned but has not disclosed to the Income Tax Department.
Key provisions of Section 68
Section 68 has the following key provisions:
- Deemed income – If a taxpayer is unable to explain any cash credit in his/her books of accounts, the amount of such credit can be deemed as the income of the taxpayer for the relevant financial year.
- Burden of proof – The burden of proof is on the taxpayer to explain any cash credit in his/her books of accounts. If the taxpayer fails to provide an explanation, the cash credit will be deemed as income.
- Books of accounts – The books of accounts maintained by the taxpayer should contain all the necessary details to explain the cash credit. If the books of accounts do not provide sufficient details, the cash credit will be deemed as income.
- Time limit – Section 68 can be applied for any financial year, and the time limit for initiating proceedings under this section is six years from the end of the relevant assessment year.
- Appeal – If the assessing officer deems any cash credit as income under Section 68, the taxpayer can appeal against such an order to the Commissioner (Appeals) or the Income Tax Appellate Tribunal (ITAT).
Consequences of non-compliance with Section 68
If a taxpayer does not comply with the provisions of Section 68, the following consequences may arise:
- The cash credit will be deemed as income and added to the total income of the taxpayer for the relevant financial year.
- The taxpayer may have to pay tax on the deemed income, along with interest and penalty.
- The taxpayer may also face prosecution for tax evasion.
Section 68 of the Income Tax Act 1961 is a powerful tool in the hands of the assessing officer to deal with cases where taxpayers cannot explain the source of cash credits in their books of accounts. This section plays a crucial role in preventing tax evasion and promoting tax compliance.
However, it is also important to note that Section 68 is often misused by the assessing officers to harass taxpayers and extract more taxes from them. Therefore, it is crucial that taxpayers maintain proper books of accounts and provide complete explanations for any cash credits in their books.
In addition to this, taxpayers should also be aware of their rights and remedies under the law. They can appeal against any adverse order passed by the assessing officer to the Commissioner (Appeals) or the Income Tax Appellate Tribunal (ITAT). They can also approach the courts if they believe that their rights have been violated.
Furthermore, taxpayers should also ensure that they comply with all the other provisions of the Income Tax Act, such as filing their returns on time, paying taxes on time, and maintaining proper records of their financial transactions. This will not only help them avoid any adverse consequences under Section 68 but also promote overall tax compliance.
In conclusion, Section 68 of the Income Tax Act is a crucial provision that helps the government to prevent tax evasion and promote tax compliance. However, it is essential that the assessing officers use this provision judiciously and not harass taxpayers. At the same time, taxpayers should also comply with the law and maintain proper records of their financial transactions to avoid any adverse consequences under this section.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
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- section 40a(7) of income tax act
- section 226(3) of income tax act
- section 24 of income tax act
Frequently Asked Questions (FAQs)
What is Section 68 of the Income Tax Act?
Section 68 of the Income Tax Act is a provision that deals with unexplained cash credits in the books of accounts of a taxpayer.
What is a cash credit under Section 68?
Cash credit under Section 68 refers to any amount that is credited to the books of accounts of a taxpayer, which cannot be explained or is unexplained.
What is the burden of proof under Section 68?
The burden of proof is on the taxpayer to explain any cash credit in his/her books of accounts. If the taxpayer fails to provide an explanation, the cash credit will be deemed as income.
What are the consequences of non-compliance with Section 68?
If a taxpayer does not comply with the provisions of Section 68, the cash credit will be deemed as income and added to the total income of the taxpayer for the relevant financial year. The taxpayer may have to pay tax on the deemed income, along with interest and penalty.
Is Section 68 applicable to all taxpayers?
Yes, Section 68 is applicable to all taxpayers, including individuals, Hindu Undivided Families (HUFs), companies, and firms.
What is the time limit for initiating proceedings under Section 68?
The time limit for initiating proceedings under Section 68 is six years from the end of the relevant assessment year.
Can a taxpayer appeal against an order passed under Section 68?
Yes, a taxpayer can appeal against an order passed under Section 68 to the Commissioner (Appeals) or the Income Tax Appellate Tribunal (ITAT).
How can a taxpayer prove the source of a cash credit under Section 68?
A taxpayer can prove the source of a cash credit under Section 68 by providing documentary evidence, such as bank statements, receipts, invoices, etc.
Can an assessing officer add any cash credit as income under Section 68 without giving an opportunity of being heard to the taxpayer?
No, the assessing officer cannot add any cash credit as income under Section 68 without giving an opportunity of being heard to the taxpayer.
What is the objective of Section 68?
The objective of Section 68 is to prevent tax evasion and promote tax compliance by ensuring that taxpayers provide complete and accurate information about their financial transactions.
