Chapter VI - Aggregation of Income
Section 106
Section 106: amount borrowed or repaid through negotiable instrument, hundi, etc
Section 106 targets loans borrowed or repaid outside the account-payee-cheque banking channel - for example, through a hundi or other negotiable instrument, or any other mode the Board specifies. Such amounts (including interest) are deemed to be income of the person borrowing or repaying, in the year the borrowing or repayment happened.
On this page
Need advice on Section 106?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Where any amount (including interest thereof) is borrowed or repaid through a negotiable instrument or on a hundi, otherwise than an account payee cheque, or through any mode as specified by the Board in this behalf, the amount so borrowed or repaid (including interest paid on the borrowed amount) shall be deemed to be the income of the person borrowing or repaying, as the case may be, for the tax year in which the amount was borrowed or repaid.
(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.
Introduction
Section 106 creates a deemed-income consequence for borrowing or repaying through the specified negotiable-instrument or hundi channels outside the permitted payment mode. Its second subsection prevents the same borrowed amount from being assessed again on repayment under this section.
Key takeaways
Specified non-banking borrowing or repayment
A loan borrowed or repaid through a hundi or another specified mode, rather than the permitted banking channel, can be deemed income in the year of borrowing or repayment, including interest.
No repeat assessment
An amount already deemed income on borrowing under this section is not assessed again under the same provision when it is repaid.
What Section 106 says
Where any amount, including interest on it, is borrowed or repaid through a negotiable instrument or hundi - other than by an account payee cheque - or through any other mode the Board specifies, the amount so borrowed or repaid (including any interest paid on the borrowed amount) is deemed to be the income of the person borrowing or repaying it, for the tax year in which the amount was borrowed or repaid.
No double taxation on repayment
Where the borrowed amount has already been deemed to be a person's income under sub-section (1), that person is not assessed again on the same amount under this sub-section when it is later repaid.
Track both transaction stages
Identify the borrowing year and repayment year, the instrument used, whether it was an account-payee cheque or a Board-specified mode, and any interest paid. Check if the borrowing itself was already assessed under subsection (1).
Step-by-step flow for applying Section 106
- 1
Was an amount borrowed or repaid through a negotiable instrument or on a hundi?
Also covered: any mode specified by the Board for this purpose.
- No (and no Board-specified mode): Section 106 is not triggered.
- Yes: Go to the next step.
- 2
Was it through an account payee cheque?
- Yes: The account payee cheque route is outside Section 106(1).
- No: Go to the next step.
- 3
Whose income and which year?
The amount borrowed or repaid, including interest paid on the borrowed amount, is deemed income of the person borrowing or repaying, for the tax year in which it was borrowed or repaid.
- 4
Was the borrowed amount already deemed income on borrowing?
- Yes: Under Section 106(2), the person is not assessed again on that amount under subsection (1) when it is repaid.
- No: The repayment itself can be tested under subsection (1) in the repayment year.
Practical checklist
Do
- Retain instrument copies, bank evidence and transaction dates for borrowing and repayment.
- Check subsection (2) if the borrowed amount was already deemed income.
Avoid
- Do not assess the same borrowed principal again on repayment when subsection (2) applies.
- Do not omit interest paid when testing the subsection (1) amount.
Illustrative example
Worked example: a hundi loan borrowed in one year and repaid in the next
Hypothetical facts (illustration only, not a real taxpayer): Mr. Mehta borrows ₹3,00,000 on a hundi in Tax Year 1. In Tax Year 2 he repays the ₹3,00,000 together with ₹30,000 interest, again through a hundi. No account payee cheque is used at either stage.
Tax Year 1 - borrowing
The ₹3,00,000 borrowed on a hundi, otherwise than by account payee cheque, is deemed his income for Tax Year 1 under Section 106(1).
Tax Year 2 - repayment of principal
Because the ₹3,00,000 borrowed was already deemed his income, Section 106(2) bars assessing him again on that amount on repayment.
Tax Year 2 - interest
Subsection (1) expressly includes interest paid on the borrowed amount. Subsection (2) speaks only of "the amount borrowed", so on the bare text the ₹30,000 interest is not covered by that relief and is to be examined under subsection (1) for Tax Year 2.
Outcome
- Tax Year 1: ₹3,00,000 deemed income.
- Tax Year 2: no second assessment of the ₹3,00,000; the ₹30,000 interest is examined under subsection (1).
- Such deemed income is charged as per Section 195 through Section 107.
Glossary
- Hundi
- A traditional negotiable instrument expressly named in this provision.
- Account-payee cheque
- The cheque form singled out by subsection (1) when testing the payment channel.
Frequently asked questions
What kind of borrowing does Section 106 target?
Amounts borrowed or repaid through a negotiable instrument or hundi (rather than an account payee cheque), or through any other mode specified by the Board.
Is the same amount taxed twice, once on borrowing and once on repayment?
No - once an amount has been deemed income on borrowing, it is not assessed again under Section 106 when it is repaid.
Does the relief on repayment also cover the interest paid?
Section 106(2) refers to the amount borrowed that was already deemed income. Interest paid on the borrowed amount is separately included in subsection (1), so it should be examined on its own in the year it is paid.
Need help applying this provision to your situation?
Get help responding to a cash loan/hundi queryLast updated 9 October 2026