Section 113 and Section 115-I of Income Tax Act 1961
Section 113 dealt with the tax rate for undisclosed income determined in a block assessment of search cases. Section 115-I allowed a non-resident Indian to opt out of the special tax regime in Chapter XII-A for a particular assessment year.
Updated for the law and transition position as on 28 September 2026.
- Section 113: tax on the undisclosed income of the block period determined under section 158BC at 60%, plus surcharge if levied by a Central Act.
- Section 115-I: an eligible non-resident Indian could elect not to use Chapter XII-A for an assessment year by making the declaration in the return furnished under section 139.
- From 1 April 2026: consult the Income-tax Act, 2025 and its transition provisions for current tax years, while applying the saved 1961 Act provisions where section 536 requires.
Section 113: Tax in the case of block assessment of search cases
Meaning. Section 113 prescribed the rate of tax applicable to the undisclosed income of the block period determined under section 158BC. As amended by the Finance Act, 2025 with retrospective effect from 1 September 2024, the provision refers to undisclosed income.
Rate. The undisclosed income of the block period determined under section 158BC is chargeable to tax at 60%. The tax is increased by surcharge, if any, levied by a Central Act.
How Section 113 fitted into the restored block assessment scheme
The block assessment procedure in Chapter XIV-B was restored for specified searches initiated, or requisitions made, on or after 1 September 2024. Section 158BC prescribed the procedure for the block assessment, while Section 113 supplied the special tax rate applicable to the undisclosed income determined for the block period.
The Finance Act, 2025 subsequently revised the computation mechanism and restored the expression "undisclosed income" in Section 113 retrospectively from 1 September 2024. This is significant because older versions of the provision or articles based only on the Finance (No. 2) Act, 2024 may show "total income" instead.
| Provision | Function under the 1961 Act |
|---|---|
| Section 132 | Search and seizure. |
| Section 132A | Requisition of books of account, documents or assets. |
| Section 158BC | Procedure for block assessment in search or requisition cases. |
| Section 113 | 60% tax rate on undisclosed income of the block period, with applicable surcharge. |
Section 115-I: Chapter not to apply if the assessee so chooses
Meaning. Section 115-I gave a non-resident Indian the choice not to be governed by Chapter XII-A for a particular assessment year. The option was exercised through the return of income furnished under section 139 by declaring that Chapter XII-A should not apply for that assessment year.
Once the option was validly exercised, the assessee's total income for that assessment year was computed, and tax was charged, under the other applicable provisions of the Income-tax Act, 1961 instead of the special Chapter XII-A regime.
Who could use Section 115-I?
The provision applied to a non-resident Indian within the special framework of Chapter XII-A. It should therefore not be treated as a general opt-out provision available to every non-resident or every taxpayer.
How was the option exercised?
The election was linked to the return of income under section 139 for the relevant assessment year. The return had to contain the declaration that the provisions of Chapter XII-A would not apply for that year. The consequence was that income and tax were determined under the other provisions of the 1961 Act.
Position after 1 April 2026
The Income-tax Act, 2025 came into force on 1 April 2026 and repealed the Income-tax Act, 1961. This does not erase liabilities, rights, completed actions or proceedings relating to periods governed by the repealed Act. Section 536 of the 2025 Act contains detailed savings and transition rules.
As a practical rule, matters concerning tax years beginning before 1 April 2026 may continue under the saved provisions of the 1961 Act, while Tax Year 2026-27 onwards is governed by the Income-tax Act, 2025. The Income Tax Department also provides an official comparison utility for checking corresponding provisions between the two Acts.
Key takeaway
For legacy block assessments under the Income-tax Act, 1961, Section 113 imposed a 60% tax rate on undisclosed income of the block period determined under section 158BC, subject to surcharge. Section 115-I served a different purpose: it permitted an NRI to opt out of Chapter XII-A for an assessment year through the return under section 139. For current transactions and tax years beginning on or after 1 April 2026, the Income-tax Act, 2025 and the Income-tax Rules, 2026 should be checked first, together with section 536 where a matter crosses the transition date.
This article is a general legal and tax information resource. Applicability can depend on the relevant tax year, date of search or requisition, procedural history and transition provisions.