Unexplained Cash Credits and its Taxability

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Income Tax is levied on five categories of income – salary, house property, business/profession income, capital gains and income from other sources. The Indian Income Tax has provisions to penalize tax evaders. The aforementioned categories except capital gains deal with revenue income and one must pay taxes on them in the FY in which it is earned/received. Capital gains deal with tax on capital asset. The basic rule of the income tax levy is that all income is taxed unless specifically exempted (i.e. made not taxable). Capital income, in general, is not taxable unless specifically brought within tax bracket.

Key Points to be Noted-
1. It is advisable to accept payments through account payee cheque or demand draft which enables the taxpayer to know the identity of the payer
2.Assessing officer may ask for various details such as mode of payment, bank account of the lender evidencing the transaction/cash flow statement of the lender etc. It is advisable to collect address and/or PAN of the depositor in order to collate the necessary documents as and when the need arises.
3.Existence of ‘books’ is necessary to invoke Section 68. Loose sheets or scraps of paper cannot be termed as book as they can be easily detached and replaced.
4.Books of accounts in which unexplained cash credit is found must be of the taxpayer

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