Tax on income referred to in section 102 or 103 or 104 or 105.
195(1)
Where the total income of an assessee—
- (a) includes any income referred to in section 102 or 103 or 104 or 105 or 106 and reflected in the return of income furnished under section 263; or
- (b) determined by the Assessing Officer includes any income referred to in any of the said sections, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of— (i) income-tax calculated on the income referred to in clauses (a) and (b), at the rate of 60%; and (ii) income-tax with which the assessee would have been chargeable had his total income been reduced by income referred to in clause (i).
195(2)
Irrespective of anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assess
Section Summary:
This section deals with the taxation of specific types of income referred to in sections 102, 103, 104, 105, or 106 of the Income Tax Act. It outlines how such income is taxed when included in the total income of an assessee (taxpayer). The section imposes a higher tax rate of 60% on these specific incomes and restricts deductions, allowances, or loss set-offs against them.
Key Changes:
- Higher Tax Rate: A flat tax rate of 60% is applied to income falling under sections 102, 103, 104, 105, or 106. This is a significant increase compared to standard tax rates.
- No Deductions or Set-offs: Unlike other income, no deductions, allowances, or loss set-offs are permitted against these specific incomes.
- Aggregate Tax Calculation: The total tax payable is calculated as the sum of:
- 60% tax on the specific income, and
- The tax on the remaining income (after excluding the specific income) at applicable rates.
Practical Implications:
- Taxpayers with Specific Incomes: Individuals or businesses earning income under sections 102, 103, 104, 105, or 106 will face a higher tax burden due to the 60% rate.
- No Relief Through Deductions: Taxpayers cannot reduce their tax liability on these incomes by claiming deductions, allowances, or setting off losses.
- Compliance Burden: Taxpayers must ensure accurate reporting of such incomes in their returns, as the Assessing Officer may also determine and include such income if not reported.
Critical Concepts:
- Sections 102, 103, 104, 105, 106: These sections typically cover incomes like unexplained cash credits, unexplained investments, unexplained money, or other undisclosed incomes.
- Aggregate Tax Calculation: The tax is computed in two parts:
- 60% on the specific income.
- Standard tax rates on the remaining income (after excluding the specific income).
- No Deductions or Set-offs: This is a strict provision, meaning taxpayers cannot use any expenses, allowances, or losses to reduce the taxable amount of these specific incomes.
Compliance Steps:
- Accurate Reporting: Ensure that any income falling under sections 102, 103, 104, 105, or 106 is accurately reported in the income tax return.
- Separate Calculation: Calculate the tax liability in two parts:
- 60% on the specific income.
- Standard tax rates on the remaining income.
- Maintain Documentation: Keep records to substantiate the nature and source of income to avoid disputes with the Assessing Officer.
Examples:
Scenario 1: A taxpayer has a total income of ₹10,00,000, which includes ₹2,00,000 as unexplained cash credit (falling under section 102).
- Tax on ₹2,00,000 at 60% = ₹1,20,000.
- Tax on the remaining ₹8,00,000 at applicable rates (e.g., 30%) = ₹2,40,000.
- Total tax payable = ₹1,20,000 + ₹2,40,000 = ₹3,60,000.
Scenario 2: A business has a total income of ₹50,00,000, including ₹10,00,000 as unexplained investments (falling under section 104).
- Tax on ₹10,00,000 at 60% = ₹6,00,000.
- Tax on the remaining ₹40,00,000 at applicable rates (e.g., 30%) = ₹12,00,000.
- Total tax payable = ₹6,00,000 + ₹12,00,000 = ₹18,00,000.
In both cases, no deductions or loss set-offs are allowed against the specific income of ₹2,00,000 or ₹10,00,000.