Unexplained investment
[Section-103 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Where in any tax year, any investment has been made by the assessee which is not recorded in the books of account, if any, maintained by such assessee, or, the Assessing Officer finds that the amount of such investment exceeds the amount recorded in such books of account where the investment is found recorded, and the assessee––
- (a)offers no explanation about the nature and source of such investment, or such excess amount, as the case may be; or
- (b)the explanation offered by the assessee, is not satisfactory in the opinion of the Assessing Officer,
then, the value of such investment, or such excess amount, as the case may be, shall be deemed to be the income of the assessee of that tax year.
FAQs on Section 103 of Income Tax Act 2025
What is Section 103 of the Income Tax Act, 2025 about?
Section 103 deals with unexplained investments made by an assessee that are either not recorded in the books of account or where the recorded amount is less than the actual investment.
From when is Section 103 applicable?
Section 103 is applicable from 1st April, 2026.
When does an investment become unexplained under Section 103?
An investment becomes unexplained if it is not recorded in the assessee’s books of account or if the recorded amount is less than the actual investment amount.
What happens if the assessee offers no explanation for an unexplained investment?
If no explanation is offered, the value of such unexplained investment is deemed as the assessee’s income for that tax year.
What happens if the explanation offered by the assessee is not satisfactory?
If the Assessing Officer finds the explanation unsatisfactory, the investment value or excess amount is deemed as the assessee’s income for that tax year.
Is it necessary for the assessee to maintain books of account to attract Section 103?
Section 103 applies even if the assessee maintains books of account; it also covers situations where the investment is not properly recorded or is understated.
Who decides whether the explanation of the assessee is satisfactory?
The Assessing Officer decides whether the explanation is satisfactory.
Can only the excess amount of an investment be deemed as income under Section 103?
Yes, if the investment is recorded but the amount recorded is less than the actual amount, only the excess is treated as unexplained and deemed as income.
Does Section 103 require any minimum threshold for unexplained investment to apply?
Section 103 does not specify any minimum threshold; it applies to any unexplained investment or excess amount.
In which tax year is the unexplained investment taxed?
The unexplained investment is taxed in the same tax year in which it is discovered.
Does Section 103 apply to both individuals and other entities?
Yes, Section 103 applies to any assessee, whether an individual, firm, company, or any other entity.
What is meant by ‘books of account’ under Section 103?
‘Books of account’ refers to the financial records maintained by the assessee for recording financial transactions.
If an assessee partially explains the investment, how is Section 103 applied?
Only the unexplained portion or the part of the explanation found unsatisfactory is deemed as income.
Is an assessee given an opportunity to explain the investment before it is taxed under Section 103?
Yes, the assessee is given an opportunity to offer an explanation regarding the nature and source of the investment.
Can an explanation based on third-party evidence be accepted under Section 103?
An explanation based on third-party evidence may be accepted if the Assessing Officer finds it satisfactory.
What is meant by ‘deemed income’ in the context of Section 103?
‘Deemed income’ means the investment or excess amount is treated as the assessee’s income by law, even if not otherwise declared by the assessee.
Does Section 103 apply if the assessee forgot to record the investment accidentally?
Yes, even accidental omission can attract Section 103 if the investment is unexplained or inadequately explained.
Is prior notice necessary before invoking Section 103?
Yes, principles of natural justice require that the assessee must be given an opportunity to explain before income is deemed under Section 103.
Can an assessee appeal against the decision of the Assessing Officer under Section 103?
Yes, the assessee can appeal against the assessment if dissatisfied with the Assessing Officer’s decision.
Does Section 103 provide for any penalties apart from treating the investment as income?
Section 103 itself only deals with deeming the investment as income; separate penalty provisions may apply under different sections.
Does Section 103 require the unexplained investment to be related to a business activity?
No, Section 103 applies regardless of whether the investment relates to business or personal assets.
If an assessee can prove that an investment was funded by exempt income, does Section 103 still apply?
If the assessee satisfactorily proves that the investment was funded by exempt income, Section 103 may not apply.
Is cash investment covered under Section 103?
Yes, both cash and non-cash investments are covered under Section 103.
Does Section 103 cover foreign investments?
Yes, Section 103 applies to all investments, including foreign investments, if the assessee is liable to tax in India.
Is mere non-recording of investment sufficient to invoke Section 103?
Yes, if the investment is not recorded and no satisfactory explanation is given, Section 103 is invoked.
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