Tax laws have more teeth now but they can be misused too. Here’s how

The Indian Government passed the I-T amendment bill, making the laws stricter but it is yet to see how strongly the laws will be enforced.

According to new laws, many unexplained expenditure, credits and deposits such as wealth inheritance from grandparents, wedding expenditure, etc will have to be explained. In case the person fails to give a ‘satisfactory’ reply to the taxmen on the source of funds received or give, he/she will have to cough up as much as 83% tax.

"We have discussed the matter among ourselves. It's a strong provision in the (Income Tax) Act and the department would find it handy in mobilising tax from black money. But there are chances that it may be misused," a senior tax official in Mumbai which accounts for the highest direct tax collection told ET.

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The relevant parts of the I-T Act are: Section 68 (dealing with unexplained cash credit, which is applicable to loans, gifts and share capital); section 69A (unexplained money, jewellery or valuable items); 69B (unexplained investment); and section 69C (unexplained expenditure.) Once section 115BBE is invoked, then the income (which is under question) cannot be set off against any other loss for the year or carried forward.

The laws have gotten more teeth but can be misused too as the person only has to tell a right source of funds. Very few people maintain account books.

“If one is able to establish unexplained deposits, loans, or investments, can the Assessing officer still not be satisfied? While every effort will be made by AO to determine identified credits as unexplained, assesses will try to prove otherwise by adequate evidences, by establishing the identity, capacity and genuineness,” Mitil Chokshi Senior Partners Chokshi and Chokshi told ET.