Sections 101 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Chapter VI begins with section 101 (what goes into total income), and then deals with two kinds of unexplained items: sums found credited in the books of an assessee (section 102) and investments not recorded in the books, or recorded in a smaller amount (section 103). If the assessee gives no explanation, or an unsatisfactory one in the opinion of the Assessing Officer, the amount is treated as income. This article reads the three sections as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked. If you have received a notice on such items, our legal dispute resolution service can help.
A sum credited in the books for which the assessee offers no explanation of nature and source, or an explanation the Assessing Officer finds not satisfactory, is charged as income of that tax year (section 102(1)). For loans or borrowings, and for share capital and premium of a company in which the public are not substantially interested, the explanation is deemed unsatisfactory unless the person in whose name the credit stands also explains it satisfactorily (section 102(2) and (3)). An unrecorded investment or excess is deemed income on the same test (section 103). The tax rate is in section 195.
Section 101: total income
In computing the total income of an assessee, all income on which no income-tax is payable under Chapter XVII-A is included. The chapter reference is printed as "Chapter XVII-A4" in the consolidated copy; the trailing digit appears to be a stray mark and is flagged here rather than corrected. The section is a single sentence and sets up the aggregation that sections 102 to 107 then use.
Section 102: unexplained credits
Sub-section (1): the basic rule
Where any sum is found credited in the books of an assessee maintained for any tax year, and:
- (a) the assessee offers no explanation about the nature and source of the credit; or
- (b) the explanation offered about the nature and source is, in the opinion of the Assessing Officer, not satisfactory,
the sum credited is charged to income-tax as income of the assessee of that tax year.
Sub-section (2): loans and borrowings
Where the sum credited consists of a loan or borrowing or any such amount, by whatever name called, the assessee's explanation is deemed not satisfactory unless:
- (a) the person in whose name the credit is recorded in the assessee's books also offers an explanation about the nature and source of the sum; and
- (b) that explanation is, in the opinion of the Assessing Officer, found satisfactory.
Sub-section (3): share application money and capital of closely held companies
Where the assessee is a company (not being a company in which the public are substantially interested) and the sum credited consists of share application money, share capital, share premium or any such amount, by whatever name called, the company's explanation is deemed not satisfactory unless:
- (a) the person, being a resident, in whose name the credit is recorded in the company's books also offers an explanation about the nature and source of the sum; and
- (b) that explanation is, in the opinion of the Assessing Officer, found satisfactory.
Sub-section (4): venture capital exception
Sub-sections (2) and (3) do not apply if the person in whose name the sum is recorded is a venture capital fund or venture capital company as referred to in Schedule V (Table: serial number 6).
Summary table
| Credit | Whose explanation is needed | Deemed unsatisfactory unless |
|---|---|---|
| Any sum credited | The assessee | Explanation about nature and source is satisfactory to the Assessing Officer |
| Loan, borrowing or similar | The assessee and the person in whose name the credit is recorded | That person also explains, and the Assessing Officer finds it satisfactory |
| Share application money, share capital or share premium of a company where the public are not substantially interested | The company and the resident in whose name the credit is recorded | That resident also explains, and the Assessing Officer finds it satisfactory |
| Credit from a venture capital fund or company referred to in Schedule V (Table: serial number 6) | Sub-sections (2) and (3) do not apply | Not applicable |
Example (invented). Greenfield Traders Pvt. Ltd., a company in which the public are not substantially interested, shows Rs. 12,00,000 as share application money from Mr. Karan, a resident. The company explains the source. Karan does not offer any explanation of the nature and source of the sum. Under section 102(3) the company's explanation is deemed not satisfactory, and Rs. 12,00,000 is charged as the company's income of that tax year. Had Karan also explained it and the Assessing Officer found the explanation satisfactory, sub-section (3) would not have deemed the company's explanation unsatisfactory (although sub-section (1) would still require the Assessing Officer to be satisfied about the nature and source).
Section 103: unexplained investment
Where in any tax year an investment has been made by the assessee which is not recorded in the books of account, if any, maintained for any source of income, or the Assessing Officer finds that the amount of the investment exceeds the amount recorded in such books, and:
- (a) the assessee offers no explanation about the nature and source of the investment, or the excess amount; or
- (b) the explanation offered is, in the opinion of the Assessing Officer, not satisfactory,
the value of the investment, or the excess amount, is deemed to be the income of the assessee of that tax year.
Example (invented). Meera's books record an investment of Rs. 8,00,000 in a plot, but the Assessing Officer finds that she paid Rs. 11,00,000. She offers no explanation for the difference. The excess amount of Rs. 11,00,000 – Rs. 8,00,000 = Rs. 3,00,000 is deemed to be her income of that tax year. If the investment was not recorded at all, the whole value of the investment would be deemed income, subject to the explanation test.
How the rate of tax is determined
The sections in this article decide what is treated as income. The rate of tax is not in sections 102 or 103; income under sections 102 to 106 is charged as per section 195 (see section 107, covered in our article on sections 104 to 107). For section 195, the live note on unexplained income and its tax is the place to start, and the rate must be read from the section as it now stands, since it was amended by the Finance Act, 2026. No rate is quoted here.
Points to note when answering an enquiry
- Nature and source. Both are asked for in section 102 and section 103; explaining the source alone is not what the text asks.
- Opinion of the Assessing Officer. The test in each section is "not satisfactory in the opinion of the Assessing Officer". The Act does not say what makes an explanation satisfactory.
- Credit by a person who is not a resident. Section 102(3)(a) speaks of "the person, being a resident"; the Act does not spell out here what follows if the person is not a resident, so read the sub-section as printed.
- No deduction against deemed income. The text of sections 102 and 103 does not by itself say that expenses are barred; section 105(2) says so for unexplained expenditure, which is discussed in the next article.
Need help with a notice on unexplained credits or investment?
Notices on credits and investments turn on documents and the creditor's own explanation. Our legal dispute resolution team can help you prepare a reply and gather the creditor's confirmations.
Key takeaways
- A sum credited in the books with no (or unsatisfactory) explanation of nature and source is income of that tax year.
- For loans and similar credits, the person in whose name the credit stands must also explain it.
- For a company in which the public are not substantially interested, share capital and premium credits need the resident creditor's explanation too.
- Venture capital funds and companies referred to in Schedule V (Table: serial number 6) are outside sub-sections (2) and (3).
- Unrecorded investment, or the excess over the recorded amount, is deemed income on the same test.
Read next
- Sections 104–107: unexplained asset, expenditure, hundi borrowings and charge of tax
- Sections 99–100: clubbing of spouse and minor child income
- Section 195: unexplained income and tax
- Income-tax Act 2025 Chapter VI
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.