Unexplained expenditure
[Section-105 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 105(1) of Income Tax Act 2025
105(1) Where any expenditure has been incurred by the assessee in any tax year, and––
- (a) the assessee offers no explanation about the source of such expenditure or part thereof; or
- (b) the explanation offered by the assessee is not satisfactory in the opinion of the Assessing Officer,
then, the amount covered by such expenditure or part thereof, shall be deemed to be the income of the assessee for that tax year.
Section 105(2) of Income Tax Act 2025
105(2) Irrespective of any other provision of this Act, the amount deemed as income in sub-section (1) shall not be allowed as a deduction under this Act.
FAQs on Section 105 of Income Tax Act 2025
What is unexplained expenditure under the Income Tax Act, 2025?
Unexplained expenditure refers to any expenditure incurred by the assessee for which no explanation about the source is offered, or the explanation offered is not satisfactory in the opinion of the Assessing Officer.
Which section of the Income Tax Act, 2025 deals with unexplained expenditure?
Section 105 of the Income Tax Act, 2025 deals with unexplained expenditure.
From which date is Section 105 of the Income Tax Act, 2025 applicable?
Section 105 is applicable from 1st April, 2026.
What happens if the assessee does not offer any explanation for an expenditure?
If no explanation is offered, the amount of such expenditure shall be deemed to be the income of the assessee for that tax year.
What if the assessee gives an explanation but the Assessing Officer finds it unsatisfactory?
If the explanation is found unsatisfactory by the Assessing Officer, the related expenditure will still be deemed as the income of the assessee for that tax year.
Is partial unexplained expenditure also treated as income?
Yes, if only part of the expenditure is unexplained or unsatisfactorily explained, that part will be deemed as income.
Will the deemed income under Section 105(1) be allowed as a deduction?
No, the amount deemed as income under Section 105(1) shall not be allowed as a deduction under the Income Tax Act, 2025.
Does Section 105 override other provisions of the Income Tax Act, 2025?
Yes, Section 105(2) states that it applies irrespective of any other provision of the Act.
What is the tax treatment of unexplained expenditure under this Act?
The unexplained expenditure is treated as the assessee’s income for the relevant tax year and is taxed accordingly without any deduction.
Does the Assessing Officer have discretion in judging the explanation for expenditure?
Yes, the satisfaction of the Assessing Officer regarding the explanation is subjective and based on his opinion.
Can the assessee claim any deduction against the unexplained expenditure deemed as income?
No, deductions are not allowed against the income deemed under Section 105.
Is there any threshold limit for applying Section 105?
The Act does not specify any threshold limit; it applies to any amount of unexplained expenditure.
Is Section 105 applicable to all taxpayers?
Yes, Section 105 applies to all assessees under the Income Tax Act, 2025.
Does it matter if the expenditure is capital or revenue in nature?
No, Section 105 applies to any expenditure regardless of whether it is capital or revenue in nature.
Will the assessee get an opportunity to explain the expenditure before it is deemed as income?
Yes, the assessee will have the opportunity to provide an explanation before the Assessing Officer decides.
What is the tax year referred to in Section 105?
The tax year refers to the financial year for which the assessment is made.
What is the consequence of unexplained expenditure for penalty purposes?
Though Section 105 itself deals with deeming income, unexplained expenditure may also attract penalties under other provisions, depending on facts.
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