Section 102
Section 102: unexplained credits
Section 102 taxes any sum credited in an assessee's books of account that the assessee cannot satisfactorily explain, as the assessee's income for that tax year. It sets a stricter standard for loans and borrowings, and an even stricter standard for share application money, share capital or premium credited to closely-held companies - in both cases requiring the person providing the money to also give a satisfactory explanation, unless that person is a specified venture capital fund or company.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
The basic rule
Where any sum is found credited in the books of account maintained by an assessee for any tax year, and the assessee either offers no explanation about the nature and source of that credit, or the explanation offered is not found satisfactory by the Assessing Officer, the credited sum is charged to income-tax as income of the assessee for that tax year.
Stricter standard for loans and borrowings
Where the credited sum consists of a loan, borrowing, or similar amount (by whatever name called), the assessee's explanation is deemed unsatisfactory unless the person in whose name the credit is recorded also offers an explanation about the nature and source of that sum, and the Assessing Officer finds that explanation satisfactory too.
Even stricter standard for share capital in closely-held companies
Where the assessee is a company in which the public are not substantially interested, and the credited sum is share application money, share capital, share premium, or a similar amount, the explanation is deemed unsatisfactory unless the resident person in whose name the credit is recorded also explains the nature and source of the sum, and that explanation is found satisfactory by the Assessing Officer.
Exception for venture capital funds
The stricter standards for loans/borrowings and for share capital in closely-held companies do not apply where the person in whose name the credit is recorded is a venture capital fund or venture capital company, as referred to in Schedule V (Table: Sl. No. 6).
Frequently asked questions
What happens if I cannot explain a credit entry in my books?
The sum credited is charged to income-tax as your income for that tax year, whether you offer no explanation or your explanation is not found satisfactory by the Assessing Officer.
Is a loan credit treated the same as any other credit?
No - for loans or borrowings, your explanation is only accepted if the lender (the person in whose name the credit is recorded) also gives a satisfactory explanation about the nature and source of the sum.
Does the stricter share-capital rule apply to all companies?
No - it applies specifically to companies in which the public are not substantially interested (closely-held companies), for share application money, share capital or premium credited to them.
Is there any exception to the lender-explanation requirement?
Yes - it does not apply where the credit is in the name of a venture capital fund or venture capital company referred to in Schedule V (Table: Sl. No. 6).
Related sections
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Get help responding to an unexplained credit queryLast updated 9 September 2026