Section 195: tax on income referred to in sections 102 to 106

Introduction

Section 195 sets a special tax treatment for income covered by sections 102 to 106. The income category and conditions in those sections must be identified before applying this rate provision.

Key takeaways

What the section says

Where the total income of an assessee includes income referred to in section 102, 103, 104, 105 or 106 - either because it is reflected in the return of income furnished under section 263, or because the Assessing Officer determines that such income exists (and it is not already covered by the return) - the income-tax payable is the aggregate of:

• Income-tax calculated at the rate of 30% on the income referred to in sections 102 to 106; and
• Income-tax with which the assessee would have been chargeable had the total income been reduced by that income.

No deductions, allowances or loss set-off against this income

Irrespective of anything else in the Act, no deduction for any expenditure or allowance, and no set-off of any loss, is allowed to the assessee under any provision of the Act while computing this income.

When this provision applies

Identify which of Sections 102–106 applies and the amount falling within it. Section 195 is the rate and computation provision for that defined income; a bank deposit or unusual receipt should not be treated as covered without applying the relevant source provision.

Distinguish income reflected in the Section 263 return from additional covered income determined by the Assessing Officer. The special computation addresses both statutory routes, without counting the same amount twice.

Limits and procedural safeguards

The current Section 195(1)(i) rate is 30%, following the Finance Act, 2026 substitution effective from 1 April 2026. It is the stated income-tax component, not a representation that surcharge, cess, interest or any separate consequence can always be ignored.

No expenditure, allowance or loss set-off is permitted in computing the covered income. Compute tax on the remaining total income separately under subsection (1)(ii); do not apply the special percentage indiscriminately to all income.

Step-by-step review

1. Determine the exact Sections 102–106 category and the amount covered.

2. Reconcile the returned and Assessing Officer-determined components without duplication.

3. Apply 30% to the covered component without prohibited deductions or loss set-off.

4. Compute tax on the balance under the applicable provisions and separately review additional levies, credits and other consequences.

Hypothetical example

Hypothetical illustration: assume ₹2 lakh is properly included under a covered provision and ordinary income is separately determined. The Section 195(1)(i) component is ₹60,000, before considering any applicable surcharge or cess. Tax on the ordinary component is computed separately; an ordinary loss cannot be used to reduce the covered ₹2 lakh under subsection (2).

Records to prepare

The facts and computation establishing the relevant Sections 102–106 category.

The return and assessment record showing each covered amount.

Separate special-income and balance-income tax computations, followed by a reconciliation of applicable levies and payments.

Official amended Act source

• Income-tax Act, 2025 as amended by Finance Act, 2026: Section 195 and related provisions

Step-by-step flow for applying Section 195

1. 1

   Does total income include income referred to in Sections 102 to 106?

   • No: Section 195 does not apply.
   • Yes: Go to the next step.
2. 2

   Where does the amount come from?

   Clause (a): reflected in the return furnished under Section 263. Clause (b): determined by the Assessing Officer, if not already covered by clause (a). Count each amount once.

3. 3

   Compute the covered income without deductions

   Under Section 195(2), no deduction for expenditure or allowance and no set-off of any loss is allowed against this income.

4. 4

   Add the two parts of the tax

   30% on the covered income, plus tax on the total income reduced by that income, computed under the normal provisions.

Practical checklist

Glossary

Covered component

Income falling within the Sections 102–106 categories addressed by Section 195.

Balance-income computation

The subsection (1)(ii) tax calculation after reducing total income by the covered component.

Frequently asked questions