Question

Just as salary is paid after deducting taxes, income from other sources is also received after deducting taxes.

Analyse the above statement, and choose the correct option.

• A. As income from agriculture is exempted, income from other sources is also exempted.
• B. Tax on income from other sources can be avoided by hiding money in offshore bank accounts where there is lower tax.
• C. Tax on salary cannot be avoided as salary is paid after deducting taxes.
• D. Tax on income from other sources can be avoided by underreporting income.

Answer 1

Answer: (B), (C), (D)

Tax on income from other sources can be avoided by underreporting income.

Income from other sources includes rental income, income from the sale of property, and interest income. People show such income as agricultural income to avail tax exemption. Some even transfer money illegally to the banks of other countries. These countries either have no tax or a lower tax rate. The Indian government does not know about such income, and hence cannot levy a tax on it. Producers even show fewer sales or inflate expenses so that the taxable income is reduced and so is the tax amount. All these practises are known as tax evasion.