We generate our income through our salaried jobs, rents, business, and other forms of investment. Now imagine a situation in which the source of income is untraceable, with no explanation regarding its nature. Such money would be considered unexplained income covered under sections 68, 69, 69A, 69B, 69C, and 69D of the Income Tax Act, 1961, and sections 102 to 106 of the Income-tax Act, 2025.
Section 68 (1961) / Section 102 (2025): The credit in the books for which the assessee has no satisfactory explanation regarding its source.
Section 69 (1961) / Section 103 (2025): The investment made by the assessee which is not recorded in the books and the explanation regarding its source is unsatisfactory according to the Assessing Officer.
Section 69A (1961) / Section 104 (2025): Unrecorded money, bullion, jewellery, or valuables owned by the assessee for the source of which the explanation is not satisfactory.
Section 69B (1961) / Sections 103 & 104 (2025): The amount spent on investments, bullion, jewellery, or valuables which is more than the amount recorded in the books.
Section 69C (1961) / Section 105 (2025): The expenditure by the assessee for which the explanation is not satisfactory.
Section 69D (1961) / Section 106 (2025): The amount borrowed or repaid on a hundi otherwise than through an account payee cheque.
Note that sections 69 and 69B have been merged into section 103, and sections 69A and 69B have been merged into section 104.
Tax Payable
The tax liability on undisclosed income differs under the old and new Income Tax Acts. The Income Tax Act, 2025 seems to ease the tax burden by almost half if the person discloses the unexplained income voluntarily. However, the new act may take a tighter route when the income is detected by the tax department, incurring a larger penalty.
Under the Income Tax Act, 1961, unexplained income is taxed at 60 percent with a 25 percent surcharge and 4 percent cess, which takes the effective rate to 78 percent. This applies in the case of voluntary disclosure of unexplained income. However, when such income is detected during the assessment proceedings, a penalty of 10 percent of the 60 percent base tax is levied, taking the overall burden to approximately 84 percent.
While under the Income Tax Act, 2025, the tax payable is halved to 39 percent. In case the unexplained income is not voluntarily disclosed, it would be treated as misreporting, attracting a penalty which equals 200 percent of the 30 percent base tax. Thus, the total burden becomes 99 percent.
