Income-tax Act, 2025 | Section 102

Section 102 - Unexplained credits

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.

Reviewed by CA Nikhil Gupta · Updated 9 October 2026

Section 102: operativeEffective 1 April 2026Tax Year 2026-27 onwardLegally reviewed 8 October 2026

Current-law control

This page uses the consolidated Income-tax Act, 2025 as amended by the Finance Act, 2026. The Act and Income-tax Rules, 2026 operate from 1 April 2026. Earlier years and saved proceedings remain subject to the repeal-and-savings framework.

Primary statute: Income Tax Department consolidated Act | Rules: Notified Income-tax Rules, 2026

2-minute decode

Who should use this section

Any assessee whose books, investments, assets, expenditure or specified negotiable-instrument transaction can trigger the unexplained-income code in sections 102-107 This applicability note is specific to section 102.

Old-law bridge

1961 Act Section 68

The bridge is navigational only. A 1961 Act case or rule is carried forward only after checking wording, transition provisions and the current 2025 Act text.

Professional alert

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.

Connected Income-tax Rules, 2026 and Forms

No provision-specific Rule/Form is independently mapped in this tranche. General return, procedure and evidence rules can still apply.

Worked application

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.

Evidence / compliance checklist

For section 102, preserve the books/ledger entry or asset/expenditure record that establishes the exact trigger and tax year.
Keep bank statements, confirmations, contracts, invoices and source documents that explain both the nature and the source of the amount under examination (section 102: Unexplained credits).
Where the statute imposes a source-of-source test, retain the counterparty financial capacity and transaction trail rather than relying only on PAN/identity (section 102: Unexplained credits).
Reconcile the explanation to return data, audited accounts and information-reporting statements so that dates and amounts do not conflict (section 102: Unexplained credits).

Common mistake

Treating section 102 as a documentation formality. For section 102, the statutory trigger, tax year, ownership/book entry and adequacy of the source explanation must be established separately.

Recommended approach

For section 102, fix the governing tax year, identify the operative sub-section for “Unexplained credits”, trace every amount to evidence, apply only verified Rule/Form links, and retain a computation that another reviewer can reproduce from the primary source.

Thresholds, periods and timing checkpoints

102. (1) Where any sum is found credited in the books of an assessee maintained for any tax year, and—
then, the sum so credited shall be charged to income-tax as income of the assessee of that tax year.

Judicial / interpretive bridge

Principal Commissioner of Income Tax (Central)-1 v. NRA Iron & Steel Pvt. Ltd. (Supreme Court; C.A. No. 2463/2019): Legacy section 68 evidentiary principles on identity, creditworthiness and genuineness remain useful, but current section 102 additionally contains express source-of-source rules for specified loans/borrowings and closely-held-company funding. Official Supreme Court source

Related provisions

Current statutory text

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).

Primary-source trail

FAQs

What does section 102 of the Income-tax Act, 2025 cover?

Section 102 covers unexplained credits. The operative result depends on the exact statutory conditions shown on this page and applies from 1 April 2026, subject to transition/savings provisions.