Tax officers can question personal expenses under section 142(1) | Fusion - WeRIndia

Many people are surprised to learn that income-tax officials can request detailed information about personal expenses under Section 142(1) of the Income Tax Act, 1961.

These queries may cover everyday costs such as grooming, perfumes, groceries, or other lifestyle expenses, along with proof of how the spending was funded.

According to experts, certain taxpayers are more likely to receive such notices.

These include individuals who show high income but make few bank withdrawals, those who spend large amounts of cash, and professionals or business owners with irregular spending patterns.

The income-tax department issues these notices when it detects differences between declared income and actual spending behaviour.

Officials analyse bank transactions, card usage, cash flow, and reported income to spot inconsistencies.

Experts note that scrutiny usually begins when a person’s lifestyle appears higher than what their financial records support.

In such situations, taxpayers may be asked to furnish a monthly breakup of groceries, salon visits, fuel costs or similar household expenses.

When a taxpayer cannot adequately explain personal expenses, the department can estimate their household spending.

This estimated amount may then be treated as additional income. As a result, the taxpayer may owe extra tax along with interest and penalties.

Many people invite trouble unknowingly by failing to track small cash payments, losing minor bills, or mixing personal and business expenses.

If a notice is issued, the first step is to verify it on the income-tax portal.

After that, the taxpayer must provide all available proof, such as bank and card statements, rent or EMI records, and utility bills.

A coherent explanation of how cash was used is crucial for resolving the inquiry.

Experts stress that keeping simple records of everyday expenses can reduce the risk of scrutiny and ensure smoother compliance.

Image from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on February 04, 2017

Image Reference: https://pxhere.com/en/photo/613228