Section 105 - Unexplained expenditure
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.
Reviewed by CA Nikhil Gupta · Updated 9 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
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.
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 105.
Old-law bridge
1961 Act Section 69C
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 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.
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 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.
Evidence / compliance checklist
- For section 105, 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 105: Unexplained expenditure).
- 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 105: Unexplained expenditure).
- Reconcile the explanation to return data, audited accounts and information-reporting statements so that dates and amounts do not conflict (section 105: Unexplained expenditure).
Common mistake
Treating section 105 as a documentation formality. For section 105, the statutory trigger, tax year, ownership/book entry and adequacy of the source explanation must be established separately.
Recommended approach
For section 105, fix the governing tax year, identify the operative sub-section for “Unexplained expenditure”, 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
- 105. (1) Where any expenditure has been incurred by the assessee in any tax year, and—
- then, the amount covered by such expenditure or part thereof, shall be deemed to be the income of the assessee for that tax year.
Judicial / interpretive bridge
No section-specific Supreme Court bridge is included for section 105 unless text-equivalence with the 2025 Act has been checked. Legacy cases should not be transplanted into section 105 merely because the subject is similar.
Related provisions
Current statutory text
Primary-source trail
FAQs
What does section 105 of the Income-tax Act, 2025 cover?
Section 105 covers unexplained expenditure. The operative result depends on the exact statutory conditions shown on this page and applies from 1 April 2026, subject to transition/savings provisions.
Who should check section 105?
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 105.
Are there specific Rules or Forms for section 105?
No provision-specific Rule/Form independently mapped in this tranche.