Section 115BBE of the Income Tax Act, 1961 imposes a flat 60% tax rate (plus 25% surcharge and 4% cess, totaling 77.25%) on unexplained income falling under Sections 68 to 69D, including income classified under “Profits and Gains of Business or Profession” (PGBP).
1. Applicability to PGBP
Section 115BBE applies to unexplained income detected in business/profession if:
- Income is unaccounted(not recorded in books or tax returns).
- Source is unexplained(e.g., cash deposits, undisclosed investments, or expenses).
- Assessing Officer (AO) invokes Sections 68–69Ddue to lack of evidence.
Example:
- A business shows ₹10 lakhas “miscellaneous receipts” but cannot prove the source → Taxed at 25% under Section 115BBE.
2. Key Scenarios in PGBP
| SECTION | UNEXPLAINED INCOME TYPE | TAX TREATMENT |
| Section 68 | Cash credits (e.g., unverified loans) | 77.25% tax if source not proved |
| Section 69 | Undisclosed investments (e.g., property) | Market value added to income |
| Section 69C | Unexplained expenses (e.g., lavish purchases) | Expense treated as income |
Case Study:
- A trader deposits ₹50 lakhin cash post-demonetization but fails to explain the source → Entire amount taxed at 25%.
3. Exceptions
Section 115BBE does not apply if:
- Income is declaredunder schemes like Income Declaration Scheme (IDS).
- Tax is paid before detection(e.g., during surveys).
4. Penalties
- 10% penaltyunder Section 271AAC if undisclosed (total liability: 84%).
- No deductions(e.g., business expenses) allowed against such income
