Section 69 of Income Tax Act: Case Laws, Tax Rate and Example

Have you ever wondered what would happen if you made an investment, but couldn't explain where the funds for it came from? Section 69 of the Income Tax Act, 1961, addresses such circumstances. If an assessee is not able to explain the source of such investments incurred in a financial year, then the Assessing Officer can consider it as income for that financial year and would impose a a higher rate of tax and heavy penalties. Now, what if your investments are under this section, and how will it impact your taxes? Let's explore the details.

What is Section 69 of the Income-tax Act, 1961?

Section 69 of the Income-tax Act, 1961 deals with unexplained investments made by an assessee during the financial year immediately preceding the assessment year. If these investments are not recorded in the books of account and the assessee fails to provide a satisfactory explanation about their source, the Assessing Officer may treat the value of these investments as the income of the assessee for that financial year.

Tax Rate Applicable for Unexplained Investments under Section 69?

The income under Section 69 is taxed at a flat rate of 60%. Additionally, a 25% surcharge and a 4% Health and Education Cess apply, making the effective tax rate 78%.

Tax rate = 60% + 25% Surcharge + 4% cess

Example: Consider an individual who invests ₹100,000 in a financial year without recording it in their books of account. If they fail to provide a satisfactory explanation for the source of this investment, the Assessing Officer may treat this amount as income under Section 69. 

Tax liability would be computed as follows: