s.115BBE — Tax on unexplained income
The special rate on income assessed under the unexplained-income provisions, and when it can be applied at all.
Income-tax Act, 1961
s.115BBE
Income-tax Act, 2025
s.195
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 115BBE of the Income-tax Act, 1961 charges income referred to in sections 68, 69, 69A, 69B, 69C and 69D at a special rate, presently 60 per cent plus surcharge and cess, with no deduction for any expenditure or allowance and no set-off of loss permitted. The contested question in practice is not the rate but whether the section applies at all: where an addition is made on a business estimate, or the receipt is assessed under a regular head of income, the argument is that the section is not attracted because the income has not been assessed under one of the specified provisions. The corresponding provision in the Income-tax Act, 2025 is section 195, which covers income referred to in its sections 102 to 106 — and which, as amended by the Finance Act 2026, charges that income at 30 per cent rather than 60.
What the provision does
Applies a flat special rate to unexplained cash credits, investments, money, expenditure and borrowings, and denies deductions, allowances and set-off against such income.
Threshold questions
- Under which provision was the addition actually made — the special rate follows the charging provision
- Is the receipt referable to a business source and assessed as such
- Where books have been rejected and income estimated, has any of sections 68 to 69D been invoked at all
- Does the assessment year fall within the period for which the current rate applies
In practice
The recurring disputes.
Estimated business income and the special rate
Where the books are rejected and a percentage applied to turnover, the resulting figure is estimated business income. Whether section 115BBE can then be applied to it, given that no cash credit or unexplained investment has been identified, is one of the most consequential contests in a search or survey matter — the difference in the demand is substantial.
Surrender during search or survey
An amount surrendered without the head of income being identified invites the special rate by default. How the surrender is characterised at the time, and what is said about its source, has direct consequences.
The successor rate is lower
Section 195 of the Income-tax Act, 2025 was amended by the Finance Act 2026 to substitute 30 per cent for 60 per cent. That is a substantive reduction travelling alongside the renumbering, and it applies from tax year 2026-27. For every earlier year — which is to say for everything currently in litigation — section 115BBE continues to govern: at 60 per cent for assessment year 2017-18 onwards, and at 30 per cent for assessment years 2013-14 to 2016-17.
Denial of set-off
The bar on set-off of loss against income charged under this section can produce a demand out of proportion to the addition, particularly where the assessee has a current-year business loss.