Important Keyword: Source of Investment, E-Verify, Income Tax Compliance, Income Tax Return.

Tax liability on the Source of Investment

In the realm of tax compliance, understanding the origins of investments is paramount, especially when they involve cash transactions. The Income Tax Act mandates that any unexplained investment is deemed income for the financial year under sections 69 and 69B, necessitating the filing of Income Tax Returns (ITRs). Additionally, investments with potential future income require not only the declaration of the investment itself but also any income generated from it.

When taxpayers encounter verification issues from the Income Tax Department (ITD), prompt action is crucial. Responses to such issues must be submitted online via the compliance portal.

These verification issues often arise through SMS, calls, or emails and can stem from various reasons:

1. Non-filing of ITR, potentially indicating pending tax liabilities for the assessment year.
2. Discrepancies between the details provided by taxpayers and the information received by the ITD for the assessment year.
3. Reporting of significant transactions during the financial year that deviate from the taxpayer’s profile, raising red flags.

To navigate these challenges effectively, taxpayers must be proactive in addressing verification issues and ensuring accurate reporting of investments and income. By adhering to tax regulations and promptly responding to ITD communications, taxpayers can uphold compliance and foster a transparent tax environment.

Verification issue in the computation of tax liability for the source of Investment

A1- Total Investment Amount: Declare the total investment made in this section. In cases of co-ownership, ensure to specify your share of the investment, including details such as name, PAN, and the share of other co-owners in the remarks section.

A2- Out of Previous Income or Savings: If any portion of the investment or expenditure originates from previous income or savings, indicate the amount under this category. Additionally, provide suitable remarks in the remarks section.

A3- Exempt from Tax Receipts: Select from the dropdown list below the available exemptions. After selecting the relevant exemption, the value of the receipt will be determined.

• Interest income under section 10.
• Dividend income under section 10(34).
• Long-term capital gains on shares under section 10(38).
• Agricultural income under section 10(1).
• Share in the total income of a firm/AOP, etc. under section 10(2A).
• Income not taxable in India.
• Others.

If this option is chosen, the following rows will be displayed:

A4- Received from Identifiable Persons (with PAN): If any amount is received from an identifiable person holding a valid PAN, provide their details as per the following table:

Transaction Type:

• Sales
• Loan Received
• Loan Repayment
• Gift Received
• Donation Received
• Other Receipt.

Transaction Mode (Source of Investment): Choose between ‘Cash’ and ‘Non-cash’. Additional rows can be added by clicking on the ‘Add Row’ button. Ensure to provide suitable remarks.

A5- Received from Identifiable Persons (without PAN): If any amount is received from an identifiable person without a PAN, provide their details as per the following table:

A6- Received from Unidentifiable Person: If any amount is received from an unidentifiable person, provide their details as per the following table:

A7- Others: Specify any amounts not covered in the above-mentioned categories and provide suitable remarks in the remarks section.

A8- Unexplained Amount: This section computes the figure (A1 – (A2+A3+A4+A5+A6+A7)) for which no explanation is provided.

A9- Income on Investments during the Year: Declare the investments made and the income generated from those investments for the particular financial year. If the nature of the business involves frequent transactions, mention the working capital employed and the income earned on the turnover.

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Official Income Tax Return filing website: https://incometaxindia.gov.in/