Income-tax Act, 2025 | Professional Repository
Chapter VI
Aggregation of Income
Sections 101-107 decoded section by section: aggregation of AOP/BOI member shares, unexplained credits, investments, assets, expenditure, hundi and negotiable-instrument transactions, special-rate taxation and connected penalty consequences.
Operative from 1 April 2026Finance Act, 2026 incorporatedLight high-contrast editionBare text + simple decodeQ&A + applied cases
Statutory priority
Finin2min explanations, examples, comparison notes and decision tools are for education and professional orientation. The statutory text, applicable Rules, Gazette notifications, binding judicial authority and the facts of the case govern.
Decision framework
Select the provision from the economic fact
AOP/BOI member share?
101
Credit in own books?
102
Investment made?
103
Asset owned/found?
104
Expenditure incurred?
105
Hundi / instrument route?
106
Special tax bridge
107 → 195
Do not begin with the rate.
First identify the statutory fact: credit, investment, asset, expenditure or borrowing/repayment. Then establish year, ownership, books, amount and evidence. Section 195 follows only after the correct deeming provision applies.
Same money, different sectionCash deposited in books can raise section 102. Cash used to buy an unrecorded asset can raise section 103 or 104. Cash spent without source can raise section 105. The legal fit depends on the primary fact proved.
No double countingThe same economic amount should not be taxed repeatedly without a distinct statutory basis. Reconcile source, application, year and flow of funds before making or accepting multiple additions.
Bare Act
101. In computing the total income of an assessee, there shall be included all income on which no income-tax is payable under Chapter XVII-A4.
Finin2min decode
Section 101 is an aggregation rule, not an exemption. It ensures that a member's share governed by Chapter XVII, Part A, sub-part 4 (association of persons and body of individuals) is brought into the total-income computation wherever that sub-part requires inclusion, even though income-tax may not be payable again by the member. The detailed treatment sits mainly in sections 309-311.
Practical example
An association of persons is taxed on its income and a member receives a computed share. Depending on section 310, that share may form part of the member's total income while no further income-tax is payable on it. Section 101 prevents the computation from treating “no tax payable” as “not included at all”.
Professional alert
Do not confuse an item included in total income but not taxed again with an item excluded from total income under Chapter III. The return, disclosure, rate and loss consequences can differ.
Section 102
Unexplained credits
Old Act map: Section 68
Bare Act
102. (1) Where any sum is found credited in the books of an assessee maintained for any tax year, and—
(a) the assessee offers no explanation about the nature and source of such credit; or
(b) the explanation offered about the nature and source of such credit by assessee is not satisfactory in the opinion of the Assessing Officer,
then, the sum so credited shall be charged to income-tax as income of the assessee of that tax year.
(2) For the purposes of sub-section (1), where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, the explanation offered by such assessee shall be deemed to be not satisfactory, unless,—
(a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer has been found to be satisfactory.
(3) For the purposes of sub-section (1), where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount, by whatever name called, the explanation offered by such assessee company shall be deemed to be not satisfactory, unless—
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation, in the opinion of the Assessing Officer has been found to be satisfactory.
(4) Nothing contained in sub-section (2) or (3) shall apply if the person, in whose name the sum referred to in those sub-sections is recorded, is a venture capital fund or a venture capital company as referred to in Schedule V (Table: Sl. No. 6).
Finin2min decode
A credit in the assessee's books needs a credible explanation of both nature and source. In practice, the evidence normally addresses identity, creditworthiness and genuineness. For loans and borrowings, section 102(2) expressly requires the creditor also to explain the nature and source of the money. For specified share funding of a closely held company, section 102(3) imposes a comparable source-of-source condition where the recorded investor is resident.
Practical example
A business records an unsecured loan of ₹40 lakh. The lender's PAN alone does not complete the file. The business should retain the agreement, bank trail, confirmation, financial capacity, return data and an explanation for material credits in the lender's account. If the lender merely received an unexplained cash deposit one day earlier, the source-of-source condition may fail.
Professional alert
Section 102 applies to a sum credited in books maintained by the assessee for the tax year. Whether a document qualifies as the assessee's “books”, and whether the credit arose in that year, are threshold questions before evidence quality is tested.
Bare Act
103. Where in any tax year, any investment has been made by the assessee which is not recorded in the books of account, if any, maintained by such assessee for any source of income, or, the Assessing Officer finds that the amount of such investment exceeds the amount recorded in such books of account and—
(a) the assessee offers no explanation about the nature and source of such investment, or such excess amount, as the case may be; or
(b) the explanation offered about the nature and source of such investment by the assessee, is not satisfactory in the opinion of the Assessing Officer,
then, the value of such investment, or such excess amount, as the case may be, shall be deemed to be the income of the assessee of that tax year.
Finin2min decode
Section 103 combines two situations: an investment missing entirely from the books, and an investment recorded below the amount actually spent. The unexplained value or unexplained excess is deemed income of the tax year in which the investment was made.
Practical example
A property is acquired for ₹1.50 crore but the books and funding file support only ₹1.05 crore. If the assessee cannot satisfactorily explain the remaining ₹45 lakh, that excess can fall within section 103. The valuation evidence, payment trail and year of investment must all be established.
Professional alert
The new provision uses “shall be deemed”, whereas old sections 69 and 69B used “may be deemed”. Legacy cases based on discretionary wording must therefore be applied cautiously.
Bare Act
104. (1) Where in any tax year, any asset has been found to be owned by or belonging to the assessee which is not recorded in the books of account, if any, maintained by such assessee for any source of income, or the Assessing Officer finds that the amount expended in acquiring such asset exceeds the amount recorded in such books of account and—
(a) the assessee offers no explanation about the nature and source of acquisition of such asset, or such excess amount, as the case may be; or
(b) the explanation offered about the nature and source of acquisition of such asset by the assessee, is not satisfactory in the opinion of the Assessing Officer,
then, the value of such asset, or such excess amount, as the case may be, shall be deemed to be the income of the assessee of the tax year in which such asset has been found to be owned by, or belonging to, the assessee.
(2) For the purposes of this section, “asset” includes money, bullion, jewellery, virtual digital asset or other valuable article.
Finin2min decode
Section 104 focuses on ownership or belonging of an unexplained asset. It covers a wholly unrecorded asset and an asset whose acquisition cost exceeds the amount recorded. The express list includes money, bullion, jewellery and virtual digital assets, while “other valuable article” keeps the provision wider.
Practical example
A digital-asset wallet controlled by an individual contains tokens worth ₹18 lakh and no acquisition trail appears in the books or disclosed records. The individual must establish ownership, acquisition dates, exchange statements, wallet transfers and the source of funds. Failure can trigger section 104 in the year the asset is found to belong to the assessee.
Professional alert
Section 103 attaches to the tax year of investment. Section 104 attaches to the tax year in which the asset is found to be owned by or belonging to the assessee. The distinction can change timing materially.
Section 105
Unexplained expenditure
Old Act map: Section 69C
Bare Act
105. (1) Where any expenditure has been incurred by the assessee in any tax year, and—
(a) the assessee offers no explanation about the source of such expenditure or part thereof; or
(b) the explanation offered about the source of such expenditure by the assessee is not satisfactory in the opinion of the Assessing Officer,
then, the amount covered by such expenditure or part thereof, shall be deemed to be the income of the assessee for that tax year.
(2) Irrespective of any other provision of this Act, the amount deemed as income in sub-section (1) shall not be allowed as a deduction under this Act.
Finin2min decode
This provision addresses spending whose source is not satisfactorily explained. The unexplained amount becomes deemed income, and the same amount cannot be claimed as a deduction. It is therefore different from a normal disallowance: the provision creates income and expressly blocks deduction.
Practical example
A professional spends ₹24 lakh on an event but can establish only ₹15 lakh from disclosed bank withdrawals and documented gifts. If the source of ₹9 lakh remains unexplained, section 105 may deem ₹9 lakh as income, and that deemed amount cannot be deducted as business expenditure.
Professional alert
Evidence must address the source of expenditure, not merely prove that expenditure occurred. Invoices may establish spending but do not by themselves establish where the money came from.
Section 106
Amount borrowed or repaid through negotiable instrument, hundi, etc.
Old Act map: Section 69D
Bare Act
106. (1) Where any amount (including interest thereof) is borrowed or repaid through a negotiable instrument or on a hundi, otherwise than an account payee cheque, or through any mode as specified by the Board in this behalf, the amount so borrowed or repaid (including interest paid on the borrowed amount) shall be deemed to be the income of the person borrowing or repaying, as the case may be, for the tax year in which the amount was borrowed or repaid.
(2) Where the amount borrowed under sub-section (1) has been deemed to be the income of any person, such person shall not be liable to be assessed again in respect of such amount under that sub-section on repayment of such amount.
Finin2min decode
Section 106 retains the anti-hundi rule but uses wider language referring to a negotiable instrument, a hundi and any Board-specified mode. Borrowing or repayment otherwise than through the permitted account-payee route can be deemed income. Repayment includes interest. The principal already taxed when borrowed is not taxed again under the same section when repaid.
Practical example
A trader borrows ₹12 lakh on a hundi through a non-account-payee instrument and later repays ₹12 lakh plus ₹1.20 lakh interest in the same manner. The borrowing can be deemed income in the borrowing year. Section 106(2) prevents the same ₹12 lakh principal from being assessed again on repayment, but the interest component requires separate analysis under section 106(1).
Professional alert
Form No. 26 under Rule 47 separately asks the tax auditor to report amounts borrowed and repaid, including interest, that are deemed income under section 106.
Bare Act
107. Income referred to in sections 102, 103, 104, 105 and 106 shall be charged to tax as per the provisions of section 195.
Finin2min decode
Section 107 is the bridge to the special-rate provision. Section 195 currently applies a base rate of 30% to income under sections 102-106 and prohibits deductions, allowances and set-off of losses against that income. Applicable surcharge and health and education cess are additional, depending on the assessee and the Finance Act.
Practical example
An assessee has normal taxable income of ₹20 lakh and section 104 income of ₹10 lakh. The ₹10 lakh is separated for section 195 treatment at the statutory base rate, while tax on the balance is computed under the otherwise applicable provisions. A business loss cannot be set off against the ₹10 lakh.
Professional alert
Finance Act, 2026 substituted 30% for 60% in section 195(1)(i) from 1 April 2026. The connected penalty architecture also changed: assessed section 195(1)(b) income is now a specified misreporting case under section 439(11)(g), while section 443 stands omitted.
Professional evidence architecture
How to build or test an explanation
Identify the statutory trigger
Locate the exact credit, investment, asset, expenditure or instrument transaction. Record the tax year, account, counterparty and amount.
Establish the primary facts
For section 102, prove the assessee's books and the credit date. For section 103, prove investment and actual amount spent. For section 104, prove ownership or belonging and the year found. For section 105, prove expenditure. For section 106, prove borrowing or repayment mode.
Trace the money
Reconcile bank statements, cash book, ledger, contracts, invoices, demat or wallet records, confirmations and source documents. Avoid unexplained gaps, circular transfers and last-minute cash deposits.
Test capacity and commercial substance
Compare the amount with income, net worth, financial statements, past savings, borrowing capacity and business rationale of the provider.
Document source of source where mandated
Loans and borrowings under section 102(2), and specified resident share investors under section 102(3), require the recorded person to explain the nature and source of funds.
Separate principal tax from penalty
Apply section 195 to income under sections 102-106, then independently test section 439, section 440 and procedural safeguards. Do not assume tax automatically determines penalty.
Evidence matrix
| Transaction | Core documents | High-risk gaps |
|---|
| Loan or borrowing | Agreement, confirmation, PAN, return, financials, lender bank statement, source of lender funds, repayment trail, interest/TDS records | Immediate cash deposit, low net worth, same-day routing, no commercial purpose, unsigned confirmation |
| Share capital/premium | Application, allotment, valuation, bank trail, investor financials, beneficial ownership, board/ROC records, investor source | Shell indicators, common addresses, unexplained premium, circular funds, investor lacks capacity |
| Property or investment | Agreement, registered value, valuation, payment ledger, loan sanction, bank trail, construction records | On-money evidence, unexplained cash, mismatch with seller records, under-recorded cost |
| Jewellery/bullion | Invoices, wealth trail, family records, inheritance/gift evidence, valuation, locker trail | Generic affidavits, no donor capacity, inconsistent weight, post-event invoices |
| Virtual digital asset | Exchange statements, wallet addresses, transaction hashes, KYC, source bank, cost and tax records | Unhosted wallet with no acquisition trail, mixer use, unrelated third-party funding |
| Expenditure | Invoices plus bank/cash source, withdrawals, gifts/loans, event or project records | Invoices prove spending but not source; cash-flow deficit; duplicate funding claims |
Connected law
Rules, rates, penalties and procedural links
Section 195
Income under sections 102-106 is taxed at a 30% base rate. No expenditure, allowance or loss set-off is permitted against that income. Surcharge and health and education cess remain additional where applicable.
Section 439(11)(g)
Income first determined by the Assessing Officer under section 195(1)(b) is expressly listed as misreporting. Section 439 provides a 200% of tax penalty for misreporting, subject to the full statutory and procedural framework.
Section 440
The waiver and immunity route must be tested after payment conditions, additional income-tax, appeal status and Chapter XXII proceedings are examined. It is not automatic.
Section 443
The separate 10%-of-tax penalty provision originally enacted for sections 102-106 income stands omitted from 1 April 2026. The operative analysis therefore centres on section 439 and related provisions.
Rule 47 and Form No. 26
The tax-audit form asks whether amounts were borrowed or repaid, including interest, through the modes covered by section 106 and requires the amount to be reported.
Schedule V, Table Sl. No. 6
Identifies venture capital funds and venture capital companies relevant to the exception in section 102(4). The entity's qualifying status must be evidenced.
Penalty discipline
A quantum addition and penalty are distinct determinations. Evidence, disclosure in the return, the route under section 195(1)(a) or (b), bona fide explanation, procedural notice and the exact misreporting category must all be considered.
Applied learning
Professional and examination case studies
Case 1: Opening capital in a new businessA proprietor records ₹22 lakh as opening capital on the first day of the books. Determine whether it is a credit made in the tax year, trace the original source and examine whether sections 102, 103 or 104 fit the actual facts. Do not select a section merely because the amount appears in capital account.
Case 2: Loan supported only by confirmationA borrower files the lender's PAN and confirmation but no bank statement or financials. Identity alone is insufficient; capacity, source of source and genuine movement of funds must be established under section 102(2).
Case 3: Loan preceded by cash depositThe creditor transfers ₹35 lakh one day after depositing cash of the same amount. The creditor must explain the cash source. Circular movement or accommodation-entry indicators require deeper verification.
Case 4: Closely held company share premiumA private company receives ₹2 crore from a resident investor. Board approvals and share allotment records prove corporate procedure, but section 102(3) also requires a satisfactory explanation of the investor's nature and source of funds.
Case 5: Non-resident share investorA closely held company receives funds from a non-resident. Section 102(3)(a) expressly refers to a resident person, but section 102(1), FEMA documentation, beneficial ownership and genuine bank trail remain relevant. Avoid treating the resident-specific proviso as a complete exemption.
Case 6: Venture capital investorA recognised venture capital fund makes an investment. The special deeming conditions in section 102(2) and (3) do not apply because of section 102(4), but the nature of the entity and Schedule V status must be proved.
Case 7: Under-recorded property investmentRegistered and accounting records show ₹90 lakh while evidence indicates ₹1.30 crore was spent. Section 103 can address the unexplained excess in the year of investment, subject to reliable evidence and valuation.
Case 8: Gold found during searchGold is found in a locker and does not appear in any wealth or acquisition record. Section 104 requires proof of ownership or belonging, value, source and the year in which it was found. Family ownership claims need corroboration.
Case 9: Virtual digital asset walletTokens are held in a wallet linked to the assessee. Exchange KYC, wallet keys, on-chain transfers and source of acquisition funds should be reconciled. Section 104 expressly includes VDA.
Case 10: Large personal celebrationAn assessee incurs ₹60 lakh of expenditure but can explain ₹45 lakh from disclosed withdrawals and documented receipts. Section 105 can apply to the unexplained ₹15 lakh; invoices alone do not prove source.
Case 11: Unexplained business expenseA business records purchases and claims deduction but the source of cash payment is not explained. Normal deduction tests and section 105 operate separately; the deemed amount cannot be deducted.
Case 12: Hundi borrowing and repaymentA person borrows ₹10 lakh and repays ₹10 lakh plus interest through non-account-payee instruments. Apply section 106 to borrowing and repayment, then prevent double assessment of the same principal under subsection (2).
Case 13: AOP member shareAn AOP is taxed and the member's share is computed under section 309. Test section 310 to determine whether the share is included in total income and whether tax is payable again; section 101 ensures correct aggregation.
Case 14: Income disclosed in returnAn assessee includes section 104 income in the return and pays section 195 tax before year-end. Compare section 195(1)(a) with assessed income under section 195(1)(b), and separately test the penalty provisions rather than assuming identical treatment.
Case 15: Human-probability testDocuments are formally complete but the investor has negligible income, no commercial rationale and funds move through several accounts on the same day. Documentary form does not prevent examination of surrounding circumstances and human probabilities.
Case 16: Old-year proceeding after commencementAn unexplained credit relates to FY 2025-26 but assessment continues after 1 April 2026. Section 536 and the transition FAQs determine whether old sections 68-69D and old section 115BBE remain operative for that year.
Q&A
Questions professionals and students actually ask
1. What does Chapter VI cover?
It covers aggregation under section 101 and unexplained credits, investments, assets, expenditure and specified hundi or negotiable-instrument transactions under sections 102-106, with tax charged through section 107 and section 195.
2. Is section 101 an exemption provision?
No. It is an aggregation provision. It can require inclusion of an AOP or BOI member's share in total income even where no further income-tax is payable at member level under Chapter XVII-A4.
3. What must be explained under section 102?
Both the nature and source of a credit found in the assessee's books for the tax year must be satisfactorily explained.
4. What are the usual three evidence tests for a credit?
Identity of the creditor or investor, financial capacity or creditworthiness, and genuineness of the transaction are commonly examined. The statutory text governs and the evidence needed depends on the facts.
5. Does PAN alone prove a loan?
No. PAN may help establish identity but does not by itself establish financial capacity, source of funds or genuineness.
6. What is source of source under section 102(2)?
For a loan, borrowing or similar amount, the person in whose name the credit is recorded must also explain the nature and source of the amount, and the Assessing Officer must find that explanation satisfactory.
7. When does the share-funding rule apply?
Section 102(3) applies where the assessee is a company in which the public are not substantially interested and the credit is share application money, share capital, share premium or a similar amount. The recorded resident investor must explain the nature and source.
8. Is there a venture-capital exception?
Yes. The special source-of-source rules in section 102(2) and (3) do not apply where the recorded person is a venture capital fund or venture capital company referred to in Schedule V, Table Sl. No. 6. Section 102(1) and general evidence requirements still need consideration.
9. Can section 102 apply to a bank statement entry?
The section requires a credit in books of the assessee. Legacy authority distinguishes a bank passbook maintained by a bank from the assessee's own books, but digital accounting facts and current statutory wording must be examined carefully.
10. Can an opening balance be taxed under section 102 in the current year?
The threshold question is whether the sum was credited in books maintained for that tax year. A carried-forward opening balance may require a different analysis, though its original credit, related assets or other proceedings can still be examined.
11. How does section 103 differ from section 104?
Section 103 concerns an investment made in the tax year. Section 104 concerns an asset found to be owned by or belonging to the assessee and taxes it in the year in which it is so found.
12. Does section 103 cover understated investment cost?
Yes. It covers both an unrecorded investment and the excess of actual investment over the amount recorded in the books.
13. Does section 104 include cryptocurrency and other VDAs?
Yes. Section 104 expressly includes virtual digital assets in the inclusive definition of asset.
14. Can jewellery received at a wedding automatically escape section 104?
No automatic conclusion follows. The assessee should establish the occasion, donor identity, relationship, capacity, contemporaneous records and subsequent ownership trail. Gift-tax treatment and unexplained-asset treatment are separate questions.
15. What does section 105 tax?
It deems unexplained expenditure, or the unexplained part of expenditure, to be income of the tax year in which it was incurred.
16. Can unexplained expenditure be claimed as a deduction?
No. Section 105(2) expressly prohibits deduction of the amount deemed as income.
17. What is covered by section 106?
It covers specified borrowing or repayment through a negotiable instrument or on a hundi otherwise than an account-payee cheque, and any mode specified by the Board. Repayment includes interest.
18. Is principal taxed twice under section 106?
No. If the borrowed amount has already been deemed income under section 106, section 106(2) prevents assessment of the same amount again on repayment under that section.
19. What is the tax rate on income under sections 102-106?
Section 195 applies a 30% base rate from 1 April 2026. Applicable surcharge and health and education cess are additional.
20. Can losses be set off against unexplained income?
No. Section 195(2) prohibits set-off of any loss and also blocks deductions and allowances when computing income covered by section 195(1).
21. Is voluntarily disclosed unexplained income also covered?
Yes. Section 195(1)(a) covers such income reflected in a return furnished under section 263. The tax and penalty consequences differ from income first determined by the Assessing Officer under section 195(1)(b).
22. What penalty may apply when the Assessing Officer determines unexplained income?
Section 439(11)(g) treats income under section 195(1)(b) as a misreporting case. The penalty framework under section 439 and any available waiver or immunity route must be tested on the precise facts and procedural status.
23. Does the old Supreme Court decision in P.K. Noorjahan apply unchanged?
No automatic carry-over should be assumed. That decision considered the old word “may” in section 69, while new sections 103 and 104 use “shall be deemed”. The changed wording is material.
24. Are there dedicated Rules for sections 101-107?
No standalone computation rule expressly keyed to sections 101-107 was located in the Income-tax Rules, 2026. Rule 47 and Form No. 26 contain specific tax-audit reporting questions for section 106, and other procedural Rules apply according to the proceeding.
25. Which Act governs an unexplained credit of a pre-1 April 2026 year?
Section 536 preserves the repealed Income-tax Act, 1961 for tax years beginning before 1 April 2026 and related proceedings. The Income-tax Act, 2025 governs tax years beginning on or after that date, subject to the saving provisions.