Section 68 - Unexplained Cash Credit in ITA

Background of Unexplained Cash Credit

Unexplained cash credits simply mean the amount of money credited in the account of an individual, but the source is unknown. The details of these credits are mentioned in the books of the individuals, but there is no proper explanation about their nature and original source.

The types of credits are considered a big part of tax evasion. These credits imply the higher arts of taxes, once they have been tracked.

Tax Treatment of Cash Credits

The unexplained cash credit is treated as the income of the year in which it is received. The unexplained cash credits are taxed directly at the higher rate of 60%. You will not be given any kind of basic benefits, irrespective of the tax slab, such as tax exemptions. The additional charges will also be applicable. Surcharges will be levied at a rate of 25% and a Health & Education cess at a rate of 4%.

Therefore, the final tax rate will be 78%. There will be no deductions allowed on the unexplained cash credits income tax. The loss cannot be set off against such a type of unexplained cash credit, which is a part of the income. There will be no penalties levied if the unexplained cash credit is already included in the ITR. The tax should be paid on or before the end of the financial year.

Key Points to Consider

• The books of accounts in which the unexplained cash credits are mentioned should be of the taxpayer.
• You should accept the payments through the payee's cheque or demand a bank draft. It will help you know the identity of the payer.
• You should collect the address and PAN of the depositor, in case the need arises. The assessment office asks for such details.
• The books should exist to invoke section 68 of the Income Tax Act.