Compliance is an essential expectation of every sphere if it’s a contribution to the nation’s development. Here is the query? Do people respond logically whenever it’s a question of payment of tax. Imagine you have earned some extra money and keeping it safe in cash, thinking no one will notice. It’s a conscious action of tax evasion, not mere omission. Here you are hiding income to avoid tax, it’s like entering a movie hall without buying a ticket.
Taxation is one of the most important sources of revenue for governments worldwide. It enables government to provide essential public service like education, infrastructure, security and healthcare. Therefore, it is expected from every citizen to contribute their share through taxes.
For students, businessman and young professionals, understanding of undisclosed income and tax evasion is crucial– not just for compliance but to avoid unnecessary deferred pain. Undisclosed income- initially it may look like a gain but over time it grows into anxiety and risk.
Let’s understand Undisclosed Income
Undisclosed income refers to money and assets not disclosed in the income tax return and the reasons for nondisclosure, are unsatisfactory. It includes
| Section 68 | Unexplained Cash credit |
| Section 69 | Unexplained investment, etc. |
| Section 69A | Unexplained money, etc. |
| Section 69B | Amount of investment etc., not fully disclosed in books of accounts |
| Section 69C | Unexplained expenditure, etc. |
| Section 68D | Amount borrowed or repaid on hundi |
Let’s understand Tax Evasion
Tax Evasion is an illegal way to minimize tax liability through fraudulent techniques like deliberate under-statement of taxable income or inflating expenses. It is an unlawful attempt to reduce one’s tax burden. Tax evasion examples
- Concealing income
- Inflating expenses
- Offshore secrecy
Undisclosed Income and Tax Evasion
Undisclosed income and tax evasion is directly linked. In fact, undisclosed income is the root form of tax evasion.
Example of Rahul
Rahul, a small travel agent, was always seeking more money to earn by whatever means. He used to do freelance job and earned cash money often as a broker. He did not disclose this earning in his income tax return (ITR), thinking, it’s my money in cash and why should I disclose anyone? On ITR, his income was less – so his tax liability was also less.
This undisclosed earning is tax evasion. Therefore, all earnings that remain undisclosed become part of tax evasion.
Over the years Rahul earned more money from his brokerage earnings but instead of disclosing in the ITR, he remined silent and kept it off the books of account and invested in various assets like gold, vehicle, shares and mutual fund etc.
Notice from the Income Tax Office
One day Rahul received a notice from the Income Tax department stating his undisclosed income and hidden investments. All the earnings he thought was safe, all investments he made silently were now considered undisclosed income.
Let’s understand undisclosed income from Rahul’s case
- Cash Income not Declared – (Money earned from brokerage and other sources)
- Unexplained Assets – (Vehicle, gold were bought without proper records out of the above earnings).
- Income from Hidden Sources – Brokerage and other source of money from freelance job not reflected in accounts.
- Undisclosed Investments: Shares and mutual funds not declared in ITR.
Consequences of Tax Evasion
Section 115BBE of the Income Tax Act, introduced to combat black money and tax evasion, focuses on the taxation of unexplained income. It applies to Section 68 to 69D and imposes heavy penalties on non-disclosure.
Pay Attention
- Always maintain transparency in keeping record to avoid future pain.
- Try to avoid fines and penalties as referred in respective sections of Income Tax Act.
- Avoid this unethical activity, known as tax evasion.
- Try to develop ‘Tax Mindset’ based on values, integrity and social responsibility.
Deferred Pain
Rahul had to pay taxes, fines and penalties. The pain was humiliating, and the money he thought he saved became a burden.
Closing Memo
- Undisclosed income initially looks like a gain but brings deferred pain.
- Declare all earnings in ITR, even it’s a smaller amount.
- Tax payment is not just a financial transaction but a reflection of integrity.