INCOME-TAX ACT, 2025 | CHAPTER VI | AGGREGATION OF INCOME

Section 104 Income Tax Act 2025: When Are Unexplained Assets Taxable?

Section 104, titled Unexplained asset, addresses assets owned by or belonging to an assessee that are not recorded in the books, or where the actual acquisition expenditure exceeds the recorded amount, and the nature and source are not satisfactorily explained.

Applicable law: The Income-tax Act, 2025 took effect from 1 April 2026. This guide describes Section 104 in the official consolidated text as amended by the Finance Act, 2026. Tax years governed by the earlier Act may require consideration of Sections 69A and 69B of the Income-tax Act, 1961.
Contents

What does Section 104 provide?

Under Section 104(1), the value of an asset, or the excess expenditure incurred to acquire it, is deemed to be income of the assessee for the tax year in which the asset is found to be owned by or belonging to the assessee, if the statutory circumstances exist and no satisfactory explanation of its nature and source is furnished.

The section does not automatically tax every asset that a person owns. The relevant facts, books of account (if maintained), ownership or belonging, recorded cost, and the adequacy of the explanation must be examined.

When can Section 104 apply?

  1. Ownership or belonging: An asset is found to be owned by or belonging to the assessee in a tax year.
  2. Missing or insufficient recording: The asset is not recorded in books of account, if any, maintained for a source of income; alternatively, the Assessing Officer finds that expenditure on its acquisition exceeds the amount recorded.
  3. Failure to explain: The assessee gives no explanation of the nature and source of acquisition or the excess expenditure, or the Assessing Officer considers the explanation unsatisfactory.
  4. Deemed income: The value of the asset or unexplained excess, as applicable, is treated as income for the tax year specified in the provision.

Relevant statutory definitions

Asset - Section 104(2): For this section, an asset includes money, bullion, jewellery, virtual digital asset or other valuable article. The statutory list is inclusive.
Virtual digital asset: A category expressly included in Section 104(2). Its detailed statutory meaning must be read with the definition provisions of the 2025 Act.
Books of account: Accounting records maintained by the assessee for a source of income, where applicable. Section 104 expressly contemplates that the assessee may maintain no such books.
Deemed income: An amount treated as income by operation of a statutory provision even if it has not been shown as ordinary receipts in the accounts.
Important distinction: Section 103 concerns unexplained investments. Section 104 concerns unexplained assets and excess acquisition expenditure. The appropriate section depends on the facts and the statutory elements, not merely the label given to a transaction.

Practical illustrations

1. Jewellery with no explained source

An assessee is found to own jewellery valued at Rs. 8,00,000, absent from the relevant books, and cannot satisfactorily explain its acquisition. Subject to proof and the statutory conditions, its value may be deemed income under Section 104.

2. Acquisition expenditure greater than recorded amount

Books record acquisition expenditure of Rs. 5,00,000 for an asset, while the Assessing Officer establishes that Rs. 8,00,000 was actually spent. If the Rs. 3,00,000 difference remains unexplained, the excess may be treated as deemed income.

3. Virtual digital assets

Virtual digital assets found to belong to an assessee are expressly within the inclusive definition of asset. Their acquisition, source of funds and documentary trail may become relevant. Mere ownership of a virtual digital asset does not by itself establish unexplained income.

What evidence can explain the source of an asset?

Depending on the circumstances, relevant material may include purchase invoices, bank statements, income records, inheritance or gift documents, loan agreements, earlier ownership records, valuation reports, digital-asset exchange statements and transaction histories. The explanation should connect the source of funds to the particular acquisition and be supported by credible records.

Whether an explanation is satisfactory is a fact-specific assessment. An assessee may contest an adverse finding through the remedies available under the Act.

How is unexplained asset income taxed?

Section 107 directs that income covered by Sections 102 to 106 is charged to tax under Section 195 of the Income-tax Act, 2025. Accordingly, the special tax provisions, applicable surcharge and cess, and restrictions on deductions or set-off must be examined under the law governing the relevant tax year. Section 104 itself establishes the deemed-income rule rather than a standalone rate of tax.

Relationship with the Income-tax Act, 1961

Section 104 substantially brings together subject matter previously addressed by Section 69A (unexplained money, bullion, jewellery and valuable articles) and aspects of Section 69B (acquisition amounts not fully disclosed in books). The 2025 wording expressly includes virtual digital assets and should be applied on its own terms.

Frequently asked questions

Does Section 104 apply to cash?

Yes. Money is expressly included in the definition of asset, subject to the other statutory conditions.

Does every unrecorded asset become taxable?

No. The Assessing Officer must consider the applicable conditions and the assessee's explanation about the nature and source of acquisition.

What if the acquisition cost is only partly recorded?

Section 104 can address the excess amount expended over the amount recorded, if the excess is not satisfactorily explained.

Can cryptocurrency or other virtual digital assets be covered?

Yes. Virtual digital assets are expressly listed in Section 104(2), but the facts and source of acquisition still require examination.

Which tax year is relevant?

Section 104 refers to the tax year in which the asset is found to be owned by or belonging to the assessee.

Official statutory source

Read the official Income-tax Act, 2025 consolidated text and the Gazette publication of the Act for the authoritative legislative wording.

Last reviewed: 10 November 2026. This article is general legal information; outcomes depend on facts and the applicable law.