Deemed Profit and its Computation © 24May2023 In certain circumstances, the Income Tax Act provides for the computation of “Deemed profit” for specific transactions or events, Deemed profit refers to the profit or income that is deemed to have been eamed or accrued, regardless of the actual profit realized. Here are some instances where deemed profit and its ‘computation may apply: It's important to note that the computation of deemed profi s based on the specific provisions of the Income Tax ‘Act and any subsequent amendments. The Act provides detalled rules and procedures for determining the deemed profit in each applicable scenario. Therefore, it is advisable to consult with a qualified tax professional CF refer to the latest tax laws and regulations to accurately determine the computation of deemed profit in specific crcumstances. + Transfer of Assets to Related Parties: When a company tansfers an asset to a related party for a consideration that is lower than its fair market value, the Income Tax Act may deem the company to have earned a profit equal to the difference between the fair market value and the actual consideration received. This Is known as deemed profit on transter of assets, ‘+ Deemed Dividend: if a closely held company distributes profits or assets to its shareholders (Including Certain spectied persons) without actually declaring or paying alvidends, such distributions may be deemed {a6 dividend income in the hands of the shareholders. The deemed dividend Is taxed in the hands of the shareholders, and the company may be required to pay additional taxes or comply with certain reporting requirements. Disallowance of Expenses: In certain situations, the Income Tax Act may disallow specific expenses Incurred by a company, and such disallowed expenses may be treated as deemed profit, For example, if a company claims excessive or unauthorized expenses that are disallowed upon scrutiny or assessment, those disallowed expenses may be treated as deemed profit. Deemed Income from Specified Transactions: The Income Tax Act may prescribe certain transactions or actives where a specific amount or percentage of income Is deemed to be earned or accrued. For instance, the Act may specify a deemed income for businesses engaged in certain activities like ‘unauthorized money lending, unexplained investments, or undisclosed income.Un closed Income & Investments. Undisclosed income and investments tefer to income or assets that have not been reported to the tax authorities or are not reflected in the financial records of an individual or entity. These may Include income ‘eared through illegal activities, Income intentionally hidden to evade taxes, or assets acquired with Unaccounted or undisclosed funds. In the context of taxation, undisclosed income and investments are ‘considered as a violation of tax laws and can attract penalties and legal consequences. In India, the Income Tax Act, 1961, contzIns provisions to deal with undisclosed income and investments. Here are some key aspects related lo unulsclosed Income and Investments: = Penalty and Prosecution: If a person oF ently Is found {o have undisclosed Income or investments, they ‘may be subject fo penalties and prosecution under the Income Tax Act. The penalties can range from a certain percentage ofthe undisclosed income to Imprisonment, depenaing on the severity of the case. = Income Declaration Scheme (IDS): The government may introduce income declaration schemes fram time to time, allowing Individuals and entities to voluntary disclose thelr undisclosed income or investments ‘These schemes typically provide an opportunity to declare the undisclosed income and pay the applicable taxea and penalties, thereby regularizing the previously undisclosed amounts + Texation and Penalties: Undisclosed income or investments ar@ lable to be taxed at the appilcable tox rates. In addition to wre 12x Hlabilly, penalties may be levied, such as the imposition of a penalty on the Lundisclosed income or the valve of the undisciosed Investments + Tax Assorement and Scrutiny: Tax authorities have the power to conduct tax assessments and scrutiny of Individuals and entives to uncover undiaclosed incame or investments. They may scrutinize financial records, conduct Investigations, and gather evidence 10 determine the existence of undisciosed income of + Tax Evasion and Black Money: Unclsciosed income and investments are often associated with tax evasion and the generation of black money. Govemments make efforts to combat these practices through Various measures, including strict enforcement of tax laws, international cooperation, and initiatives to promote transparency and financial disclosures. + Benami Transactions: Benami transactions refer to transactions where property is held by one person on behalf of another without proper documentation or disclosure. The Income Tax Act has provisions to tackle benam\ transactions and properties. Benami properties are subject to confiscation by the goverment, and those involved in such transactions can face penalties and prosecution. + Tax Evasion and Money Laundering: Undisclosed income and investments are often linked to tax evasion ‘and money laundering. Money laundering involves the process of making ilegally obtained money appear legitimate by passing it through a complex series of transactions. Governments and regulatory authorities, hhave measures in place to combat money laundering and may cooperate with international organizations to tackle cross-border financial crimes. + Tax Amnesty Schemes: Governments may inttoduce tax amnesty schemes to encourage individuals and entities to Voluntarily clsclose their undisclosed income or investments. These schemes typically provide certain benefits, such as reduced penallles or immunity from prosecution, for those who come forward and deciare their undisclosed assets.+ Tax Information Exchange Agreements (TIEAs): Governments collaborate through TIEAs to exchange Information and combat tax evasion and undisclosed assets held in foreign jurisdictions. TIEAS facilitate the ‘exchange of financial information between countries, enhancing transparency and enabling tax authorities ‘to detect undisclosed income and investments held abroad.