📌 Unexplained Income to be Taxed at 39% (Earlier 78%)
The Finance Bill 2026 proposes to rationalise the tax rate on Income where the source is not properly explained.
✦ Earlier positionAs per Old Rate (Income Tax Act, 1961)- Tax rate 60%- Surcharge 25% of tax- Cess 4% of tax + surcharge
➤ Effective tax was 78%- Additional penalty 10% of tax✦ New positionAs per New Act amended by Finance Bill, 2026- Tax rate reduced to 30%- Surcharge + cess continue
➤ Effective tax = 39%Tax cost is almost half compared to earlier
✦ Penalty rules- Earlier- Separate penalty of 10% of tax- Now- Treated as misreporting of income- Penalty can be 200% of tax payableSo lower tax, but much higher risk if caught in scrutiny
✦ Relief option- If voluntarily disclosed in ITR → No misreporting penalty- If detected by AO → Can avoid 200% penalty by paying additional tax of 120% of tax amount
✦ Practical Impact- Government reduced tax to encourage disclosure- At the same time, penalty is made stricter to discourage concealment- Focus is on early settlement and less litigationTeam SCS
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