Section 106 - Amount borrowed or repaid through negotiable instrument, hundi, etc
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.
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
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.
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 106.
Old-law bridge
1961 Act Section 69D
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 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.
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 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).
Evidence / compliance checklist
- For section 106, 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 106: Amount borrowed or repaid through negotiable instrument, hundi, etc.).
- 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 106: Amount borrowed or repaid through negotiable instrument, hundi, etc.).
- Reconcile the explanation to return data, audited accounts and information-reporting statements so that dates and amounts do not conflict (section 106: Amount borrowed or repaid through negotiable instrument, hundi, etc.).
Common mistake
Treating section 106 as a documentation formality. For section 106, the statutory trigger, tax year, ownership/book entry and adequacy of the source explanation must be established separately.
Recommended approach
For section 106, fix the governing tax year, identify the operative sub-section for “Amount borrowed or repaid through negotiable instrument, hundi, etc.”, 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
- 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.
Judicial / interpretive bridge
No section-specific Supreme Court bridge is included for section 106 unless text-equivalence with the 2025 Act has been checked. Legacy cases should not be transplanted into section 106 merely because the subject is similar.
Related provisions
Current statutory text
Primary-source trail
FAQs
What does section 106 of the Income-tax Act, 2025 cover?
Section 106 covers amount borrowed or repaid through negotiable instrument, hundi, etc.. 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 106?
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 106.
Are there specific Rules or Forms for section 106?
No provision-specific Rule/Form independently mapped in this tranche.