Unexplained credits
[Section-102 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 102(1) of Income Tax Act 2025
102(1) Where any sum is found credited in the books of account maintained by the assessee for any tax year, and––
- (a)the assessee offers no explanation about the nature and source of such credit; or
- (b)the explanation offered by assessee is not satisfactory in the opinion of the Assessing Officer,
then, the sum so credited shall be charged to income-tax as income of the assessee of that tax year.
Section 102(2) of Income Tax Act 2025
102(2) If the sum so credited consists of loan or borrowing, or any such amount, by whatever name called, the explanation offered by such assessee shall be deemed to be not satisfactory, unless,—
- (a)the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and
- (b)such explanation, in the opinion of the Assessing Officer referred to in sub-section (1), has been found to be satisfactory.
Section 102(3) of Income Tax Act 2025
102(3) If the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium, or any such amount, by whatever name called, the explanation offered by such assessee company shall be deemed to be not satisfactory, unless—
- (a)the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
- (b)such explanation, in the opinion of the Assessing Officer referred to in sub-section (1), has been found to be satisfactory.
Section 102(4) of Income Tax Act 2025
102(4) Nothing contained in sub-section (2) or (3) shall apply if the person, in whose name the sum referred to in those sub-sections is recorded, is a venture capital fund or a venture capital company as referred to in Schedule V (Table: Sl. No. 6).
FAQs on Section 102 of Income Tax Act 2025
What is meant by “unexplained credits” under the Income Tax Act, 2025?
Unexplained credits refer to any sum found credited in the assessee’s books for which the assessee offers no explanation about the nature and source, or the explanation is not satisfactory to the Assessing Officer.
From when are the provisions of unexplained credits applicable under this Act?
The provisions are applicable with effect from 1st April, 2026.
Under which section of the Income Tax Act, 2025 are unexplained credits covered?
Unexplained credits are covered under Section 102(1) of the Income Tax Act, 2025.
What happens if the assessee does not provide a satisfactory explanation for a credit entry?
The sum so credited will be charged to income-tax as the income of the assessee for that tax year.
What are the conditions under Section 102(1) for treating a sum as income?
The conditions are: (a) no explanation is offered by the assessee, or (b) the explanation offered is not satisfactory in the opinion of the Assessing Officer.
What special provisions apply if the credit entry consists of a loan or borrowing?
Under Section 102(2), the explanation is deemed unsatisfactory unless the person in whose name the credit appears also explains the nature and source satisfactorily.
Who must provide an explanation when the credit relates to a loan or borrowing?
The person in whose name such credit is recorded in the assessee’s books must provide an explanation.
What happens if the explanation for a loan or borrowing is not satisfactory?
The credit amount will be treated as income of the assessee for that tax year.
What is the effect if the creditor offers a satisfactory explanation for a loan or borrowing?
If the creditor offers a satisfactory explanation, in the opinion of the Assessing Officer, the sum will not be treated as unexplained income.
What special rule applies to private companies regarding unexplained credits?
Section 102(3) states that if the assessee is a private company, the explanation for share application money, share capital, share premium, etc., is deemed unsatisfactory unless the resident shareholder also explains the nature and source satisfactorily.
Which companies are covered under Section 102(3)?
Companies not being companies in which the public are substantially interested are covered.
Who must provide an explanation for share application money credited in a private company’s books?
The resident person in whose name the credit is recorded must offer an explanation about the nature and source.
Does the Assessing Officer’s opinion matter in deciding the adequacy of the explanation?
Yes, the Assessing Officer’s opinion is crucial to determine if the explanation is satisfactory.
Is there any exception to the special conditions under Section 102(2) and 102(3)?
Yes, Section 102(4) provides an exception.
What is the exception provided in Section 102(4)?
The exception is that if the person in whose name the sum is recorded is a venture capital fund or a venture capital company as referred to in Schedule V (Table: Sl. No. 6), Section 102(2) and Section 102(3) do not apply.
What is the relevance of Schedule V (Table: Sl. No. 6) in this context?
It identifies venture capital funds or venture capital companies to whom the special rules for loans, borrowings, or share capital credits do not apply.
If a credit is from a venture capital fund, does the assessee need to satisfy the Assessing Officer?
No, if the credit is from a venture capital fund or venture capital company specified in Schedule V (Table: Sl. No. 6), the assessee is not required to meet the conditions under Section 102(2) or Section 102(3).
What if the person offering the explanation is not a resident?
Section 102(3) specifically requires the explanation from a resident in case of share application money, share capital, share premium, or similar credits.
Can an assessee escape addition of unexplained credits merely by providing documentary evidence?
No, merely providing documents is not enough; the Assessing Officer must find the explanation satisfactory.
Is the burden of proof on the assessee or the creditor?
Primarily, the burden is on the assessee to offer an explanation; additionally, the creditor must also explain in cases of loans, borrowings, or share capital credits.
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