Question

Michael makes a living by fetching workers to and from a nearby factory with an old bus. However, the old bus that he was driving was not considered as roadworthy by the authorities. He does not have the financial resources to buy a new or even a second-hand bus. He tried to apply for a permit but was rejected many times as the authorities are of the opinion that the bus is not considered as roadworthy. Because of this, the bus fares that he charges the passengers are lower than the market price and the passengers are happy with this arrangement. As he does not have a permit for operating the bus, he did not register his business. Michael is wondering whether he should report his income since the income is illegal. Michael has approached you to advise him whether his income is chargeable to income tax.

Required: Advise Michael and support your answer with appropriate case law.

Answer 1

Answer

According to income tax rules, any individual who earns with or without registration is not taxable, if his earnings do not exceed the limit is not taxable as per the law. If it exceeds the exemption limit then he can report his money and his income is liable to income tax. And it's not illegal money because he is providing good service and even the passengers are happy for his service and arrangements done. But, yes it may lead to punishment as he does not have a permit for operating the bus, income earned through responsible to Tax if the earnings exceed the limit.

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