Section 106 is the substantive equivalent of 1961 s. 69 D. Where any amount (including interest) is BORROWED or REPAID through a NEGOTIABLE INSTRUMENT or HUNDI, OTHERWISE THAN by account-payee cheque (or other CG-prescribed mode), the…
106
ITA 2025 · Section 106
Section 106 — HUNDI / NEGOTIABLE-INSTRUMENT CASH BORROWING (1961 s. 69D SUCCESSOR)
Section 106 is the substantive equivalent of 1961 s. 69D. Where any amount (including interest) is BORROWED or REPAID through a NEGOTIABLE INSTRUMENT or HUNDI, OTHERWISE THAN by account-payee cheque (or other CG-prescribed mode), the amount so borrowed/repaid is deemed INCOME of the borrower / repayer in the tax year of borrowing / repayment. Sub-section (2) — relief: amount once deemed income under sub-section (1) is NOT subjected to s. 106 tax again on subsequent repayment. Avoids double taxation.
HISTORICAL CONTEXT
Section 69D (now s. 106) targeted the HUNDI mechanism — pre-modern banking instrument used in informal Indian credit markets, particularly in textile / commodity / jewellery trades. Hundis facilitated cash-borrowing without banking-channel paper trails. The provision criminalised this informal channel by treating the borrowing AND the repayment as separate income events — punitive for cash-economy participants. Modern parallel: cash-routed informal lending; certain crypto-OTC transactions; off-record bridge financing.
PLANNING NOTES
(i) ALWAYS use account-payee cheque / NEFT / RTGS / UPI / online banking for any borrowing or lending — even between related parties. Cash routes invoke s. 106. (ii) For multi-step lending (A pays X cash to B, B pays X cash to C, etc.), each leg may attract s. 106 — chain effect punitive. (iii) For genuine business arrangements requiring informal channels (rural retail, agri-trading), document the transactions thoroughly — banking-channel proof critical. (iv) Repayment of borrowing covered: paying back a hundi-loan in cash also triggers s. 106 — the lender / receiver bears the tax.
CROSS-REFERENCES