Sections 68 and 69 of Income Tax Act: Unexplained Credits and Investments
Sections 68 and 69 of the Income-tax Act, 1961 dealt with unexplained credits and unexplained investments. From 1 April 2026, the Income-tax Act, 2025 is in force. The corresponding current provisions are Section 102 for unexplained credits and Section 103 for unexplained investment.
Section 68: Cash credits
Under the 1961 Act, Section 68 applied where a sum was found credited in the assessee's books and the assessee either gave no explanation about its nature and source or the Assessing Officer found the explanation unsatisfactory.
Section 102: Unexplained credits
The 2025 Act uses the clearer expression "unexplained credits." If a credit in the books is not satisfactorily explained as to its nature and source, the credited sum is chargeable as income of that tax year.
What is an unexplained credit?
An unexplained credit is a sum appearing as a credit in the books of an assessee for which the nature and source are not explained to the satisfaction required by law. The expression is wider than physical cash: the provision concerns a credit entry in the books, not merely receipt of currency.
Section 102 of the Income-tax Act, 2025
Section 102 applies when a sum is found credited in the books maintained for a tax year and the assessee offers no explanation about the nature and source of the credit, or the explanation is not satisfactory in the opinion of the Assessing Officer. In that event, the sum is charged to income-tax as income of the assessee for that tax year.
For a credit consisting of a loan, borrowing or a similar amount, the explanation is not treated as satisfactory unless the person in whose name the credit is recorded also explains the nature and source of the sum and the Assessing Officer finds that explanation satisfactory.
For a closely held company receiving share application money, share capital, share premium or a similar amount, the law similarly requires the resident person in whose name the credit is recorded to explain the nature and source, with the explanation being satisfactory to the Assessing Officer. The statutory exception for the specified venture capital fund or venture capital company continues under the current provision.
What is an unexplained investment?
An unexplained investment is an investment for which the books do not properly record the amount and the assessee does not satisfactorily explain its nature and source. Under the current Section 103, the rule covers both an investment not recorded in the books and an investment for which the Assessing Officer finds that the amount invested exceeds the amount recorded in the books.
Section 103 of the Income-tax Act, 2025
Where an assessee makes an investment in a tax year that is not recorded in the books maintained for a source of income, or the amount of the investment exceeds the amount recorded, Section 103 applies if no explanation about the nature and source is offered or the explanation is not satisfactory to the Assessing Officer. The value of the unexplained investment, or the unexplained excess amount, is then deemed to be income of that tax year.
Old Sections 68 and 69 compared with current Sections 102 and 103
| Subject | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Credit in books not satisfactorily explained | Section 68 - Cash credits | Section 102 - Unexplained credits |
| Investment not recorded in books | Section 69 - Unexplained investments | Section 103 - Unexplained investment |
| Investment recorded at an amount lower than the amount invested | Earlier dealt with under the wider group of deeming provisions, including Section 69B where applicable | Expressly covered by Section 103 |
| Relevant period under current law | Previous year and assessment year terminology | Tax year terminology |
Tax rate on unexplained income under the current law
Section 195 of the Income-tax Act, 2025 provides the special tax treatment for income referred to in Sections 102 to 106. As amended by the Finance Act, 2026 with effect from 1 April 2026, such income is taxed at 30 percent. Section 195 also provides that no deduction for expenditure or allowance and no set-off of loss is allowed in computing this income.
What should an assessee be able to explain?
The statutory question is the nature and source of the credit or investment. The evidence needed depends on the facts. Relevant records may include books of account, bank records, transaction documents, confirmations, loan documents, share subscription records, financial statements, tax records and evidence explaining the source of funds. For loans, borrowings and specified company credits, Section 102 contains additional source-explanation requirements described above.
Why the distinction between Sections 102 and 103 matters
Section 102 begins with a credit found in the assessee's books. Section 103 concerns an investment that is unrecorded or recorded at an amount lower than the amount invested. Identifying the correct statutory provision matters because the factual foundation for a credit entry and for an unexplained investment is different.
Legacy wording of Sections 68 and 69
The former Section 68 permitted a credit found in the books to be charged as income where the assessee gave no satisfactory explanation of its nature and source. The former Section 69 permitted the value of an investment not recorded in the books to be deemed income where its nature and source were not satisfactorily explained.
Related Income Tax Act topics
- Section 55: Cost of improvement and cost of acquisition
- Section 55A: Reference to Valuation Officer
- Section 56: Income from other sources
- Section 57: Deductions
- Section 58: Amounts not deductible
- Sections 59, 60 and 61
- Sections 62 and 63
- Section 64: Clubbing of income
- Sections 65 and 66
- Section 67A: Member's share in AOP or BOI
- Sections 68 and 69: Unexplained credits and investments
- Sections 69A and 69B: Unexplained money and investments
- Sections 69C and 69D: Unexplained expenditure and hundi transactions
- Section 70: Set-off of loss under the same head
This article is for general legal and tax information. Statutory provisions, amendments and facts of the particular tax year should be verified before relying on them in a proceeding or return.