• Introduction

    Understanding taxation intricacies is crucial for individuals and firms. Section 68 of the Income Tax Act, 1961, dealing with unexplained cash credits, holds significant implications. This article explores Section 68, recent amendments, and practical implications to provide a comprehensive understanding.

    What Does Section 68 Say?

    Section 68 addresses unexplained cash credits. If any sum is credited in the books without a satisfactory explanation, it may be charged as the assessee’s income.

    Example: If a firm can’t explain a credited amount, it’s added as unexplained cash credit.

    Amendments to Section 68

    As of the assessment year 2013-14, Section 68 applies to closely held companies. If a company can’t explain a shareholder’s share capital or premium, it’s treated as unexplained income, except for registered Venture Capital Companies.

    Can the Department Ask for the Source of the Source?

    Courts’ judgments vary. If credits are in relatives’ names, the burden of proof lies with the assessee. Giving details about creditors may prevent additions to income.

    Proviso Added in Finance Bill 2022

    Conditions for a Deemed Satisfactory Explanation:

    1. The person in whose name the credit is recorded offers an explanation.
    2. The Assessing Officer finds the explanation satisfactory.

    Special Provision for Companies:

    1. Applicable to non-public limited companies.
    2. Applies to share application money, share capital, share premium, or similar amounts.
    3. Same conditions as above for a deemed satisfactory explanation.

    Responsibility under Section 115BBE

    Since the assessment year 2017-18, a 78% tax rate (60% tax, 15% surcharge, 3% education cess) is applied to unexplained cash credits. Additionally, a 6% penalty under Section 115BBE raises the total tax to 84%.


    Section 68 is crucial for combating money laundering and ensuring financial transparency. Recent amendments make compliance more critical. Understanding and adhering to Section 68 is paramount to avoid substantial penalties and protect the financial health of individuals and corporations.