s.113 — Tax in the case of block assessment of search cases
Charges the total undisclosed income of the block period at 60 per cent, whatever year it relates to, and allows a surcharge only if a Central Act levies one.
Section 113 governs the rate for a search initiated, or requisition made, from 1 September 2024 to 31 March 2026. Section 32 of the Finance (No. 2) Act, 2024 omitted the word "undisclosed" and the closing words of the proviso with effect from 1 September 2024. The Finance Act, 2025 restored "undisclosed" from the same date. The closing words of the proviso were not restored. The counterpart in the Income-tax Act, 2025 is section 192, which applies to a search initiated on or after 1 April 2026.
Income-tax Act, 1961
s.113
Income-tax Act, 2025
s.192
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 113 of the Income-tax Act, 1961 provides that the total undisclosed income of the block period, determined under section 158BC, "shall be chargeable to tax at the rate of sixty per cent". Under section 158BA(7) it is charged as income of the block period, whatever the year to which it relates. Slabs, the basic exemption and the rates for companies and firms play no part. The proviso says the tax "shall be increased by a surcharge, if any, levied by any Central Act", and fixes no surcharge itself. Those words come from a proviso added with effect from 1 June 2002, which ended "and applicable in the assessment year relevant to the previous year in which the search is initiated under section 132 or the requisition is made under section 132A". Section 32 of the Finance (No. 2) Act, 2024 removed those closing words with effect from 1 September 2024, so the section no longer says which year's Finance Act is to be looked at. The same section removed the word "undisclosed"; the Finance Act, 2025 restored it from the same date. The surcharge clauses of the Finance (No. 2) Act, 2024, the Finance Act, 2025 and the Finance Act, 2026 name the sections on which surcharge is levied, and section 113 is not among them. Whether any surcharge is payable is unsettled. Health and Education Cess at four per cent is treated as payable: on undisclosed income of one crore rupees the tax is sixty lakh rupees and the cess two lakh forty thousand rupees. Interest under sections 234A, 234B and 234C is not charged (section 158BF). The section applies to a search initiated from 1 September 2024 to 31 March 2026. For a search initiated on or after 1 April 2026 the counterpart is section 192 of the Income-tax Act, 2025. Sub-section (1) charges 60 per cent "Irrespective of anything contained in any other provisions of this Act", words section 113 does not have, and sub-section (2) repeats the surcharge words.
What the provision does
Fixes one rate, 60 per cent, for the total undisclosed income of the block, whatever the year to which it relates. It does not levy a surcharge; it only allows for one if a Central Act levies it. It does not say which year's Finance Act applies. It does not reach the regular income of the search year, which is assessed separately under the ordinary provisions. And unlike section 192(1) of the 2025 Act it has no overriding words.
Threshold questions
- Whether the income taxed at 60 per cent is total undisclosed income determined in the block order, and not regular income of the search year, which is assessed separately
- Whether surcharge has been added to the block tax, and under what provision of which Finance Act
- Whether cess has been computed at four per cent of the tax
- Whether interest under section 234A, 234B or 234C (sections 423, 424 and 425 of the 2025 Act) has been charged on block income, which section 158BF and section 297 do not allow
- Whether an unexplained credit, investment or expenditure of a block year has been taxed at the block rate or under section 115BBE or section 195
In practice
The recurring disputes.
Whether surcharge is payable on block tax
The assessee's case is that the proviso to section 113 and section 192(2) levy nothing; they allow for a surcharge "if any, levied by any Central Act". The surcharge clauses of the Finance (No. 2) Act, 2024, the Finance Act, 2025 and the Finance Act, 2026 name the sections to which they apply, and neither section 113 nor section 192 is among them. When Parliament surcharged block tax in 2003 it named section 113. Since 1 September 2024 neither Act says which year's Finance Act governs a block that spans six years and part of a seventh. The assessee relies on CIT v. Vatika Township Pvt. Ltd. (Supreme Court, Constitution Bench, Civil Appeal No. 8750 of 2014, 15 September 2014). The Court said at paragraph 39: "In the absence of a specified date, it was not possible to levy surcharge and there could not have been an assessment without a particular rate of surcharge." It held the 2002 proviso prospective and overruled CIT v. Suresh N. Gupta (Supreme Court, Civil Appeal No. 32 of 2008, 7 January 2008), which had treated it as clarificatory. The Revenue's case is that the Finance Act provides that tax in cases under Chapter XII of the 1961 Act and Chapter XIII of the 2025 Act is determined as provided there and with reference to the rates the Finance Act imposes. The general surcharge in the First Schedule attaches by reference to the person's total income. The surcharge is now uniform in structure from year to year, so the choice of year matters less than it did. And the retention of the surcharge words in both sections shows that some surcharge was intended. The firm's view is that no surcharge is leviable on the present Finance Acts, and that the point should be taken wherever surcharge has been added to block tax. It is unsettled.
Whether cess is payable and under which Finance Act
The Revenue's case is that the cess is on different words from the surcharge. The Health and Education Cess is four per cent of the income-tax specified in the charging sub-sections of the Finance Act, and those include the sub-section that covers Chapter XII and Chapter XIII cases, without naming sections. The assessee has two objections. The first is that neither Act says which year's Finance Act applies to a block; it has less force for a rate that has been four per cent in each of the Finance Acts concerned. The second is that on the reasoning in Vatika Township, which described the old chapter as "a complete code in itself" and block income as distinct from total income (paragraphs 27 and 28), the annual Finance Act is not read into the block at all. The firm's view is that the cess stands on different words from the surcharge, and it is treated as payable here. Both objections remain available to an assessee who wishes to take them.
Unexplained credits and investments at the block rate or the rate for deemed income
The block provisions apply the deeming provisions for unexplained credits, investments and expenditure. Outside the block such income is taxed under section 115BBE of the 1961 Act, and under section 195 of the 2025 Act, whose rate the Finance Act, 2026 reduced from 60 per cent to 30 per cent. Under the 1961 Act, where the charge under section 115BBE would exceed the block rate, the Revenue may contend that deemed income is taxable under that section whatever the proceeding, and point out that section 113 has no overriding words. The assessee's answer is that section 158BB(4)(b) applies the deeming sections only "for the purposes of determination of undisclosed income", and that section 158BA(1) opens "Notwithstanding anything in any other provisions of this Act". Section 158BA(7) then charges that income "at the rate specified in section 113, as income of the block period". Under the 2025 Act the positions reverse. An assessee with an unexplained credit found in a search will want the 30 per cent of section 195, and the Revenue will rely on the opening words of section 192(1). The firm's view is that the block rate governs under both Acts. Income determined in the block is charged once, under the block's charging words, and is not part of the total income of any year in which the other section could operate. Vatika Township described a rate that "remains static at 60%" (paragraph 27). The result under the 2025 Act is that the same unexplained credit bears 60 per cent if it is found in a search and 30 per cent if it is found in a scrutiny.