Income Tax Act 2025: Section 106 for Tax Year 2026-27

Amount borrowed or repaid through negotiable instrument, hundi, etc.

[Section-106 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Section 106(1) of Income Tax Act 2025

106(1) Where any amount (including interest thereof) is borrowed or repaid through a negotiable instrument or a hundi, other than an account payee cheque, or through any mode as specified by the Board in this behalf, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying, as the case maybe, for the tax year in which the amount was borrowed or repaid.

Section 106(2) of Income Tax Act 2025

106(2) Where the amount borrowed under sub-section (1) has been deemed to be the income of any person, such person shall not be liable to be assessed again in respect of such amount under that sub-section on repayment of such amount.

FAQs on Section 106 of Income Tax Act 2025

Q1. What is covered under Section 106(1) of the Income Tax Act, 2025?
Section 106(1) covers the borrowing or repayment of any amount (including interest) through a negotiable instrument or hundi, other than an account payee cheque, or through any mode specified by the Board.

Q2. From when is Section 106 applicable?
Section 106 is applicable from 1st April, 2026.

Q3. What happens if I borrow money through a negotiable instrument not being an account payee cheque?
The amount borrowed shall be deemed to be your income for the tax year in which the amount was borrowed.

Q4. What if I repay money through a hundi instead of using an account payee cheque?
The amount repaid shall be deemed to be your income for the tax year in which the amount was repaid.

Q5. Are interest amounts included under Section 106(1)?
Yes, the provision includes the amount of interest along with the principal amount.

Q6. What types of negotiable instruments are referred to under Section 106(1)?
It refers to any negotiable instruments other than account payee cheques, including hundis and such other instruments as specified by the Board.

Q7. Will the amount borrowed or repaid be taxed as income?
Yes, it will be deemed as the income of the person borrowing or repaying, as the case may be.

Q8. Can the Board specify additional modes for borrowing or repayment?
Yes, the Board is empowered to specify additional modes for borrowing or repayment under this section.

Q9. If the amount is already taxed once on borrowing, will it be taxed again on repayment?
No, once the amount has been deemed income on borrowing, it will not be taxed again on repayment under Section 106(2).

Q10. Does Section 106(2) prevent double taxation of the same amount?
Yes, Section 106(2) ensures that the same amount is not assessed again when it is repaid.

Q11. In which year will the income be deemed if borrowed or repaid through improper modes?
The income shall be deemed in the tax year in which the borrowing or repayment occurs.

Q12. What is the purpose of Section 106?
The purpose is to discourage non-transparent methods of borrowing and repayment by deeming such amounts as taxable income unless proper banking channels are used.

Q13. Will borrowing through an account payee cheque be taxed under Section 106?
No, borrowing or repayment through an account payee cheque is excluded from the scope of Section 106.

Q14. Is repayment through cash also covered under Section 106?
If the repayment is not through an account payee cheque or specified mode, including cash, it would be covered and deemed as income.

Q15. Who is liable under Section 106 — the borrower or the repayer?
Both — the borrower (at the time of borrowing) and the repayer (at the time of repayment) can be liable depending on the transaction.

Q16. What if I borrow by a bearer cheque?
Since a bearer cheque is not an account payee cheque, the amount borrowed would be deemed as income under Section 106.

Q17. Are transactions through banking channels other than account payee cheques allowed?
Only if they are through modes specified by the Board; otherwise, it will attract the consequences of Section 106.

Q18. Can negotiable instruments other than hundis also attract Section 106?
Yes, any negotiable instrument not being an account payee cheque may attract Section 106.

Q19. Is interest repayment through a hundi also deemed income?
Yes, interest repayment through a hundi would also be deemed income along with the principal.

Q20. What if both borrowing and repayment happen through improper modes?
Each transaction — borrowing and repayment — is separately evaluated for deeming income under Section 106(1), but double taxation on the same amount is prevented by Section 106(2).