Income-tax Act, 2025 and Unexplained Income: Old Sections 68 to 69D vs New Law – Change in Substance or Just Structure?
The introduction of the Income-tax Act, 2025 has triggered widespread discussion across tax portals, professional circles, and business forums. At first glance, the Act appears to be a major overhaul, with renumbered sections, sharper language, and a completely new framework. However, a closer and calmer reading suggests that many of the changes are more about presentation, clarity, and consolidation than about a fundamental shift in tax policy. The provisions dealing with unexplained income are a classic example of this phenomenon.
Unexplained Income Under the Income-tax Act, 1961: Sections 68 to 69D
Under the Income-tax Act, 1961, sections 68 to 69D formed a compact code to deal with unexplained items found during assessment proceedings. Section 68 covered unexplained cash credits, section 69 dealt with unexplained investments, section 69A with unexplained money, bullion or valuables, section 69B with investments not fully disclosed, section 69C with unexplained expenditure, and section 69D with amounts borrowed or repaid on hundi. A common thread across most of these provisions was the use of the word “may” while empowering the Assessing Officer to treat such unexplained amounts as income of the assessee.
Over the years, courts repeatedly held that the use of the word “may” was not accidental. It recognised that these provisions were deeming in nature and had to be applied judiciously, based on facts, explanations, surrounding circumstances, and the overall conduct of the assessee. Judicial precedents consistently emphasised that additions could not be made mechanically and that the Assessing Officer was required to apply mind, examine evidence, and act fairly.
Income-tax Act, 2025: Sections 102 to 105 and the Shift from “May” to “Shall”
In the Income-tax Act, 2025, the provisions dealing with unexplained income have been regrouped and now broadly appear in sections 102 to 105. One noticeable drafting change is the replacement of the word “may” with “shall”, which has caused immediate concern among taxpayers and professionals alike. On a superficial reading, this change gives an impression that once an explanation is not found satisfactory, the addition becomes automatic and mandatory.
However, reading the statute in isolation would be a mistake. Tax laws do not operate in a vacuum, and settled principles of interpretation do not evaporate merely because of a change in wording or section number. The requirement of examining explanations, evaluating evidence, and ensuring fairness continues to be embedded in the assessment process. The word “shall” operates only after the factual foundation is properly laid, and the explanation offered by the assessee is found unsatisfactory on objective grounds.
Does “Shall” Eliminate Discretion? A Practical and Legal Perspective
The fear that Assessing Officers now have unfettered power to make additions is largely a matter of perception rather than policy. Even under the new Act, the Assessing Officer must first establish the existence of unexplained credits, investments, money, or expenditure. The assessee continues to have the right to offer an explanation and support it with evidence. Only when such explanation does not inspire confidence, fails the test of reasonableness, or is contrary to material on record does the deeming fiction come into play.
Courts have repeatedly held that deeming provisions, especially those which fasten tax liability, must be strictly construed and reasonably applied. There is nothing in the Income-tax Act, 2025 to suggest that Parliament intended to discard decades of jurisprudence governing unexplained income. The change in language appears to be aimed at drafting consistency rather than a substantive expansion of taxing powers.
Old Law vs New Law: Substance Over Semantics
When the old sections 68 to 69D are compared with the new framework under the Income-tax Act, 2025, the core principles remain intact. The burden of initial explanation still lies on the assessee. The Assessing Officer’s duty to examine, verify, and apply mind continues. The appellate safeguards remain available. What has changed is the structure, sequencing, and clarity of drafting, not the underlying philosophy of taxation.
Similarly, the broader theme of the 2025 Act is to move away from interpretational clutter, reduce repetitive language, and align the statute with a tax-year-based framework. This intent becomes clear when one reads the Act as a whole rather than isolating individual words or sections.
Conclusion: More Perception, Less Panic
The Income-tax Act, 2025 certainly looks new, and its language may appear stricter at first glance. However, in the context of unexplained income provisions, the shift from sections 68 to 69D to sections 102 to 105 is largely a matter of reorganisation and redrafting. The long-settled legal principles governing discretion, fairness, and judicial scrutiny continue to hold the field.
Taxpayers and professionals would do well to avoid immediate apprehension and instead focus on measured analysis. The law may have a new structure, but its foundations remain familiar. Ultimately, the real impact will depend not on the choice of words in the statute, but on how responsibly the provisions are applied by tax authorities and how consistently they are interpreted by courts.
