Unexplained Cash Credits, Investments and Expenditure – Sections 102 to 106 and the 30% Tax
- If you cannot explain the source of a credit, investment, asset or expenditure to the Assessing Officer, it can be taxed as your income (sections 102 to 105).
- Under section 195 such income is taxed at a flat 30% without any deduction.
- Borrowing or repaying through anything other than an account-payee cheque or notified mode can be treated as income of the borrower or payer (section 106).
Sections 102 to 106 of the Income-tax Act, 2025 are the successors of the old sections 68, 69, 69A, 69B, 69C and 69D. They allow the department to treat money it cannot link to a known, taxed source as income.
What each section covers
| Section | What it deals with | When it applies |
|---|---|---|
| 102 | Unexplained credits | A sum is credited in your books and you offer no explanation of its nature and source, or the explanation is not satisfactory |
| 103 | Unexplained investment | An investment is not recorded in your books (or exceeds the recorded amount) and its nature and source are not satisfactorily explained |
| 104 | Unexplained asset | An asset you own is not recorded (or its cost exceeds the recorded amount) and the acquisition is not satisfactorily explained |
| 105 | Unexplained expenditure | You incur expenditure and cannot explain the source. The amount cannot be claimed as a deduction |
| 106 | Borrowing/repayment otherwise than by account-payee cheque | A loan or repayment (with interest) is made through a hundi or negotiable instrument other than an account-payee cheque, or any mode the Board notifies. The amount is deemed income of the borrower or payer |
Tax rate – section 195
If your total income includes income covered by sections 102 to 106, whether you showed it in your return or the Assessing Officer found it, tax on that income is a flat 30%, plus tax on the rest of your income at normal rates. No deduction under any provision of the Act is allowed against this income (section 195), and section 105(2) separately bars a deduction for the unexplained expenditure itself.
What helps in practice
- Keep documents that show where cash deposits, gifts, loans or sale proceeds came from: bank statements, gift deeds, loan agreements, sale deeds and the donor’s income details.
- Take and repay loans through banking channels, using account-payee instruments.
- Record every investment and asset in your books where books are kept.
- For loans and borrowings, section 102(2) treats the explanation as not satisfactory unless the conditions in that sub-section are met – read it if you take loans from relatives or others.
Penalties and prosecution can follow if the department finds under-reporting or misreporting: see late fee and interest, section 439 (penalty) and section 478 (prosecution for wilful evasion). Seek professional advice if you receive a notice.
Still have a question? Ask TAXBADI – get an answer from the Act, Rules and forms, with the exact sections cited.
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This guide is for general information and is not tax advice. Tax figures are before health and education cess unless stated. The law and the official notifications are the final authority – see our Disclaimer. Found a mistake? Tell us.