Section 102 Income Tax Act 2025: When Are Unexplained Credits Taxable?
Section 102 of the Income-tax Act, 2025 addresses sums credited in an assessee's books where their nature and source are not satisfactorily explained. It sets additional source-explanation requirements for loans, borrowings and certain company share receipts.
What does Section 102(1) provide?
If a sum is found credited in books maintained by an assessee for a tax year, and the assessee either gives no explanation about its nature and source or gives an explanation the Assessing Officer finds unsatisfactory, that sum is chargeable to income-tax as the assessee's income for that tax year.
The statutory inquiry is into the nature and source of the credit. A credit entry does not automatically become taxable merely because it exists; the provision applies where the required explanation is absent or unsatisfactory.
Section 102(2): Loans and borrowings
Where the credited sum is a loan, borrowing or similar amount, however described, the assessee's explanation is deemed unsatisfactory unless both conditions are met:
- The person in whose name the credit is recorded also explains the nature and source of the sum.
- The Assessing Officer finds that person's explanation satisfactory.
Thus, a lender's name or a bank transfer by itself may not resolve the statutory inquiry into the source of the credit.
Section 102(3): Share application money, capital and premium
For a company in which the public are not substantially interested, when the credited amount is share application money, share capital, share premium or a similar receipt, the company's explanation is deemed unsatisfactory unless the resident person in whose name the credit stands also explains its nature and source and the Assessing Officer finds that explanation satisfactory.
This special condition is expressed in the statute with reference to a resident credit-holder. The general rule under subsection (1) must still be considered in every relevant case.
Section 102(4): Venture capital exception
The additional requirements of subsections (2) and (3) do not apply where the person in whose name the relevant credit is recorded is a venture capital fund or venture capital company referred to in Schedule V, Table, serial number 6. This does not eliminate the basic inquiry under subsection (1).
Relevant statutory terms and concepts
Practical illustrations
Example 1: Unexplained book credit
A trader records a credit of Rs. 8,00,000 but cannot identify its source or provide a satisfactory explanation. Subject to the assessment facts, Section 102(1) can treat the amount as income of the relevant tax year.
Example 2: Loan received
A business records a loan from an individual. The lender must also explain the nature and source of the credited sum, and the Assessing Officer must be satisfied with that explanation for the subsection (2) requirement to be met.
Example 3: Share premium
A closely held company records share premium from a resident subscriber. Section 102(3) requires a satisfactory explanation from that resident subscriber in addition to the company's own explanation.
How is unexplained credit taxed?
Section 107 directs that income referred to in Sections 102 to 106 is charged to tax under Section 195 of the Income-tax Act, 2025. The applicable rate and restrictions must therefore be checked under Section 195 rather than inferred from ordinary slab rates.
The predecessor provision is Section 68 of the Income-tax Act, 1961. The corresponding special tax treatment under the former law was addressed in Section 115BBE. The governing statute depends on the tax year concerned.
Frequently asked questions
Does every bank deposit fall under Section 102?
No. Section 102 specifically concerns sums found credited in books maintained by the assessee. Whether a particular bank entry falls within this section depends on the facts and the nature of the records; other statutory provisions may be relevant.
Is a bank transfer sufficient proof of a loan?
Not necessarily. Section 102(2) additionally requires a satisfactory explanation of the nature and source from the person in whose name the loan or borrowing is credited.
Does Section 102 apply to share capital?
Yes. Subsection (3) imposes additional requirements for specified share receipts of companies in which the public are not substantially interested, subject to its wording and exceptions.
What is the corresponding section under the 1961 Act?
Section 68 of the Income-tax Act, 1961 is the broadly corresponding provision concerning unexplained cash credits.
Official statutory references
Updated: 10 November 2026. This article is general legal information; statutory amendments and facts of individual cases should be checked before reliance.