Section 86 of the Income Tax Act deals with income from part-time businesses or professions. In this blog, we will explore the different aspects of Section 86, including its provisions, applicability, and implications.
What is Section 86 of the Income Tax Act?
Section 86 of the Income Tax Act provides for the taxation of income from part-time businesses or professions. It applies to individuals who earn income from a business or profession but also have a full-time job or engage in other income-generating activities. The section aims to prevent tax evasion by ensuring that all income, including income from part-time activities, is properly taxed.
Provisions of Section 86
Under Section 86, an individual who earns income from a part-time business or profession is required to calculate the total income earned from all sources, including the part-time business or profession. The individual must then pay tax on the total income earned, as per the applicable tax rates.
The section also provides for the deduction of expenses incurred in earning the income from the part-time business or profession. These expenses can be claimed against the income earned from the part-time activity, thereby reducing the tax liability. However, the expenses claimed must be genuine and reasonable, and must have been incurred in the course of earning the income.
Applicability of Section 86
Section 86 applies to individuals who earn income from a part-time business or profession, in addition to their regular employment or other income-generating activities. The section applies to both salaried and self-employed individuals who have a part-time business or profession. However, the section does not apply to individuals who are engaged in a full-time business or profession.
Implications of Section 86
The implications of Section 86 are significant for individuals who have a part-time business or profession. Such individuals must ensure that they accurately calculate their total income and claim all legitimate deductions to reduce their tax liability. Failing to do so could result in penalties or legal action by the tax authorities.
Moreover, individuals with a part-time business or profession must maintain proper records of their income and expenses to support their tax returns. They must also comply with other tax requirements, such as filing tax returns on time and paying any taxes owed.
Section 86 of the Income Tax Act is an important provision that seeks to prevent tax evasion and ensure that all income earned by an individual is properly taxed. The section is particularly relevant for individuals who have a part-time business or profession in addition to their regular employment or other income-generating activities.
One of the key provisions of Section 86 is the requirement to calculate total income earned from all sources, including the part-time business or profession. This means that individuals must account for all income earned during the financial year, including income from salaries, investments, rental income, and any other sources of income. They must then pay tax on the total income earned, as per the applicable tax rates.
The section also provides for the deduction of expenses incurred in earning income from the part-time business or profession. This includes expenses such as rent, utilities, office supplies, and any other expenses that are directly related to the part-time activity. Individuals can claim these expenses against the income earned from the part-time activity, thereby reducing their tax liability.
However, it is important to note that the expenses claimed must be genuine and reasonable, and must have been incurred in the course of earning the income. Individuals who claim excessive or unreasonable expenses may be subject to scrutiny by the tax authorities and may face penalties or legal action.
Another important aspect of Section 86 is the requirement to maintain proper records of income and expenses. Individuals with a part-time business or profession must keep accurate records of all income earned and expenses incurred in relation to the activity. This includes maintaining records of invoices, receipts, and other financial documents.
In addition, individuals must comply with other tax requirements, such as filing tax returns on time and paying any taxes owed. Failure to comply with these requirements could result in penalties or legal action by the tax authorities.
Conclusion
Section 86 of the Income Tax Act aims to ensure that income from part-time businesses or professions is properly taxed. It applies to individuals who earn income from a part-time activity, in addition to their regular employment or other income-generating activities. Such individuals must accurately calculate their total income, claim legitimate deductions, and comply with other tax requirements to avoid penalties or legal action by the tax authorities.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
Who does Section 86 of the Income Tax Act apply to?
Section 86 applies to individuals who earn income from a part-time business or profession, in addition to their regular employment or other income-generating activities.
What is the purpose of Section 86?
The purpose of Section 86 is to ensure that income from part-time businesses or professions is properly taxed and to prevent tax evasion.
Does Section 86 apply to individuals who have a full-time business or profession?
No, Section 86 does not apply to individuals who are engaged in a full-time business or profession.
Can expenses be claimed against income earned from a part-time business or profession?
Yes, legitimate expenses incurred in earning income from a part-time business or profession can be claimed against the income earned.
What kind of expenses can be claimed against income earned from a part-time business or profession?
Expenses that can be claimed include rent, utilities, office supplies, and any other expenses that are directly related to the part-time activity.
Can individuals claim excessive or unreasonable expenses?
No, expenses claimed must be genuine and reasonable, and must have been incurred in the course of earning the income.
What kind of records must be maintained by individuals with a part-time business or profession?
Individuals must maintain accurate records of all income earned and expenses incurred in relation to the activity. This includes maintaining records of invoices, receipts, and other financial documents.
Are there any penalties for non-compliance with Section 86?
Yes, failure to comply with the provisions of Section 86 could result in penalties or legal action by the tax authorities.
Can individuals with a part-time business or profession file a separate tax return?
No, individuals must file a single tax return that includes all income earned from all sources, including the part-time business or profession.
Are there any exemptions or deductions available for individuals with a part-time business or profession?
No, there are no specific exemptions or deductions available for individuals with a part-time business or profession. However, individuals can claim legitimate expenses incurred in earning the income from the part-time activity.
