The requirement of each countrys economy and society requires taxation of some other type of receipt which may

not be a income under its normal definition. This is known as deemed income. We will study here what are the receipts which are deemed as income under the income tax act. Extended definition of income The term income in section 2(24) of the income-tax act is an inclusive definition by which the normal definition of income is extended to include some other type of receipt as income. The capital receipts like capital gain, voluntary contributions received by trust, compensation on termination of employment ( termed as profit in lieu of salary u/s 17) are also included as income. Similarly surplus from mutual activities like insurance business and income of cooperative society is also included as income. Even windfall gain and casual receipts are included as income. Deemed Dividend Under section 2(22) of the income-tax act, dividend includes:

Distribution by a company of accumulated profit in the form of release of assets to the shareholders Distribution by a company of debentures, debenture stock or deposit certificate to its shareholders and bonus shares to preference shareholders to the extent of accumulate profit. Distribution by company on liquidation to the extent of accumulated profit. Distribution by a company to shareholder on the reduction of capital to the extent of accumulated profit. Payment by closely held company by way of advance or loan to a shareholder or to a person on behalf of shareholder to the extent of accumulated profit. This will not apply where the money is advanced in the ordinary course of business of the company who is in the business of money lending. This is a very important provision because if it is seen that a closely held company has advanced loan to a shareholder then it would be deemed as dividend.

Clubbing of Income Under section 64 of the income tax act, income of some other person like spouse, minor child can also get taxed as the income of the individual though it is not his own income. Gifts Under section 56 (2) (v), any sum of money in excess of Rs 50,000, received by an individual or HUF from any person without consideration is to be included as the income of the recipient. Exemption is provided to the extent that gift from relative, gift on the occasion of the marriage of the individual, receipt under a will or in contemplation of the death of the donor is not covered by this section. Relative for the purpose of this section means, spouse, brother, sister, brother of spouse, sister of spouse, brother of mother/father, sister of mother/father, any lineal ascendant or descendant of individual or his/her spouse and spouse of all brothers and sisters listed before. Gifts from local authority or from any registered/approved charitable fund or institution or educational institution or hospital are also exempted. Cash Credit (section 68) If there is some credit (deposit) in the books of the assessee, then the assessee has to prove the identity of the payer, creditworthiness of the payer and genuineness of transaction, otherwise the credit will be deemed as the income of the assessee.

Unexplained Investments (section 69) If the assessee has made an investment which is not recorded in the books and for which no satisfactory explanation has been provided, the value of investment is the deemed income of the assessee. Unexplained money (section 69A) If the assessee has found to be in possession of money, bullion, jewellery or valuable article which is not recorded in the books and for which no satisfactory explanation has been provided, the money and the value of the bullion, jewellery or valuable article is deemed income of the assessee. Amount of investment not fully disclosed in books (section 69B) If the assessee has made investment or he is found to be in possession of money, bullion, Jewellery or valuable article and this is not fully recorded in the books and no satisfactory explanation has been provided, the excess is deemed income of the assessee. Unexplained expenditure (section 69C) If the assessee has incurred any expenditure and he does not give satisfactory explanation about the source of such expenditure, the unexplained part is deemed as the income of the assessee and is also not allowed as deduction as expenditure under any head of income. Amount borrowed or repaid on hundi (section 69D) If assessee borrows any amount on hundi or any amount due is repaid otherwise than through an account payee cheque, the amount so borrowed or repaid is deemed as income of the assessee. In addition the following amount is also deemed as income of the assessee:

Employers contribution to recognized provident fund in excess of 12% of salary. Interest credited on the balance to the credit of the employee in an account of recognized provident fund, in excess of 9% per annum. An amount representing interest and employers contribution transferred from unrecognized provident fund to recognized provident fund or paid out from unrecognized provident fund. Payment from recognized provident fund in case the total period of contribution is less than 5 years. In the case of pension fund (section 80CCC) or pension scheme (section 80CCD), any amount is received on maturity, it is taxable.