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TMI BlogTaxation of Unexplained Incomes : Clause 195 of Income Tax Bill, 2025 Vs. Section 115BBE of Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... higher rate of taxation, and that taxpayers cannot mitigate their tax liability on such incomes through deductions, allowances, or set-off of losses. This commentary provides a detailed analysis of Clause 195 of the Income Tax Bill, 2025, examining its structure, legislative purpose, and practical implications, followed by a comprehensive comparative analysis with Section 115BBE of the Income-tax Act, 1961. Objective and Purpose The legislative intent behind both Clause 195 and Section 115BBE is rooted in the need to deter tax evasion and to provide a punitive framework for the taxation of incomes that are not satisfactorily explained or are discovered through assessment proceedings. Historically, sections such as 68, 69, 69A, 69B, 69C, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act 1961. The provision covers two scenarios: * (a) Income reflected in the return: Where the assessee himself discloses such income in the return of income furnished u/s 263 (analogous to section 139 of the 1961 Act). * (b) Income determined by the Assessing Officer: Where the Assessing Officer determines that such income exists, even if not disclosed by the assessee. This dual coverage ensures that both voluntary and detected cases of unexplained income are brought within the ambit of the special tax regime. 2. Computation of Tax The tax payable under Clause 195 is the aggregate of: * Tax at 60% on unexplained income: The income referred to in sections 102 to 106 is taxed at a flat rate of 60%, irrespective of the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, HUFs, firms, or companies. This high rate is intended to serve as a deterrent against the introduction of unexplained income into the system, particularly in the context of cash transactions, shell companies, or benami holdings. Practical Implications 1. Impact on Taxpayers The practical effect of Clause 195 is to impose a significant tax burden on any income that falls within sections 102 to 106. Taxpayers who are unable to satisfactorily explain the source of certain credits, investments, expenditures, or borrowings will face a 60% tax rate on such amounts, without the ability to reduce the taxable amount through deductions or losses. This can result in substantial tax liabilities, especially in cases involving large unexplained sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . * They deny the benefit of deductions, allowances, or set-off of losses against such incomes. * They apply both to incomes disclosed in the return and those determined by the AO. 2. Differences in Referenced Sections The primary difference lies in the sections referenced: * Section 115BBE: Applies to incomes u/ss 68 (unexplained cash credits), 69 (unexplained investments), 69A (unexplained money, bullion, jewelry, etc.), 69B (amount of investments not fully disclosed), 69C (unexplained expenditure), and 69D (amount borrowed or repaid on a hundi). * Clause 195: Applies to incomes u/ss 102 to 106 of the new Bill. While the precise content of these sections is not provided, it is reasonable to infer that they serve the same functio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arise depending on the precise language and scope of sections 102 to 106 in the new Bill. If these sections have a broader or narrower ambit than sections 68 to 69D, the practical coverage of Clause 195 could differ. Additionally, any changes in the procedural requirements for assessment or the definition of "return of income" could affect the application of the provision. 7. International Comparison Many jurisdictions adopt similar approaches to unexplained or unaccounted incomes, often taxing them at higher rates or denying deductions. The Indian approach, as reflected in Section 115BBE and Clause 195, is consistent with international best practices in combating the laundering of unaccounted money through the tax system. Ambiguities an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esents a continuation and reinforcement of the legislative approach embodied in Section 115BBE of the Income-tax Act, 1961. Both provisions serve as powerful tools in the fight against tax evasion, ensuring that unexplained or unaccounted incomes are subject to a punitive rate of taxation and that taxpayers cannot mitigate their liability through deductions or set-offs. While the core structure and intent remain unchanged, the precise scope and application of Clause 195 will depend on the interpretation and implementation of the new sections 102 to 106. Taxpayers and practitioners must remain vigilant in understanding and complying with these provisions, as the consequences of non-compliance are severe and far-reaching. Full Text: Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X
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