There are times when families create unaccounted assets. All gifts on weddings, for example, are exempt from income-tax
(I-T). Cash or gold received in marriage can be unaccounted items as individuals may not need to disclose them when filing tax
returns. Similarly, a housemaker can inherit jewellery
and she doesn’t need to declare it in her tax
Usually, such unaccounted assets would not create problems. But can be questioned when, say, you sell them to raise money or if tax officials carry a search of the premises of an assessee. When you sell such items, the officer can ask to submit bills and explain the source of such jewellery
to ascertain whether the tax offered is truthful.
“While there are no standard regulations on such assets, an old Central Board of Direct Taxes circular states that gold jewellery
and ornament to the extent of 500 grams for married women and 250 grams for unmarried women need not be seized. For men, the limit is 100 grams,” says Naveen Wadhwa, a chartered accountant with Taxmann.com.
The circular, however, also states that “the authorised officer may, with regard to the status of the family, and the custom and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quantity of jewellery and ornaments from seizure”.
In a recent case, the I-T department recovered some jewellery from an individual during search proceedings along with unexplained expenditure on house construction, undisclosed stock, and advances. The tax officer had put jewellery under the head of ‘undisclosed income’.
The assessee submitted that no incriminating material was found during the course of search and the disclosure was taken only on the basis of the valuation of jewellery at current rate instead of the actual cost of acquisition of the jewellery. It was also submitted that considering the status of the assessee’s family and the number of family members, the jewellery found during the course of search was not abnormal. The tax tribunal ruled in favour of the taxpayer.
Similarly, families may keep a significant amount of cash for emergencies such as hospitalisation of an old parent or for the marriage of a child. The cash could also be the money received as a gift during a wedding. If you have cash, ensure you can prove the source of cash. In case of salaried, the withdrawals from the bank account can prove as source. In case of business owners, the tax return filed or advance tax paid can help provide the source of funds. “For gold or cash received in a marriage, the tax office can ask to disclose the details of the donor and their Permanent Account Number to verify the claim,” says Arvind Rao, a chartered accountant and founder of Arvind Rao & Associates.
In another recent case, tax officers recovered Rs 9.25 lakh from the locker of an assessee during a search operation and treated it as an unexplained investment. As the assessee had kept money in the locker, and not in a bank account which is easily accessible, the tax officer was not convinced that the money was accounted for. But the assessee showed the source of funds and the tribunal ruled in favour of the taxpayer.
For those earning over Rs 50 lakh a year, they need to disclose all assets in their returns. If they have not disclosed any assets, the taxman can called it defective returns and ask for returns to be filed again.
It gives power to the tax officers to exclude a higher quantity of jewellery if the status of the family is such that it may have a higher quantity of gold than specified or the gifting and buying of gold in certain communities is more prevalent.
Bills of purchase
Tax paid on gift received from distant relatives or friends
Opting for inheritance through a Will
Declaring assets in tax returns if you earn over Rs 50 lakh
Bank account statement showing withdrawals
For business owners, income tax return filed and book of accounts