Client money in your bank account: the section 68 trap

Client money for flights, hotels and visas lands in your bank account, sometimes a personal account, sometimes cash a client deposits from another town. Your books show only the fee you earned. At scrutiny, an officer can treat any credit you can't explain as your income under section 68 of the Income-tax Act, and the burden of proving otherwise sits on you, not the department.

One travel agent found that out expensively: returned income of ₹12,32,980, assessed at ₹2,41,18,660, over credits the officer called unexplained (Mumbai ITAT, ITA 893 & 894/Mum/2025, 10 June 2025). He won on the big number, but still had ₹16,76,193 added to his income, because his books couldn't show which part of that money was his and which part belonged to his clients.

This post gives you two things to build before any notice arrives: a booking-wise tie-out sheet proving where client money went, and the document pack to hand your CA. None of this is about avoiding tax. It's about proving money that was never yours in the first place.

Why the department reads your bank credits as income

Section 68 says that if a sum is credited in your books for a year, and you don't explain where it came from, or your explanation doesn't satisfy the Assessing Officer, it can be taxed as your income. That the money was never yours to keep doesn't help unless your records show it: who paid, for which booking, and where the money went next.

The onus is explicitly on you, not the officer: "the onus of proving the source of a sum of money found to have been received by an assessee is on him" (Roshan Di Hatti v. CIT). Large cash deposits also reach the department on their own. From 1 April 2026, banks report cash deposits or withdrawals of ₹50 lakh or more a year in your current accounts, and cash deposits of ₹10 lakh or more (₹5 lakh without PAN) in your other accounts, time deposits aside (ICAI, Income-tax Rules 2026, Rule 237), and that data can show up in your AIS before your CA opens the file. The old Rule 114E, in force before April 2026, carried the same ₹50 lakh and ₹10 lakh limits.

Section 68, 69A, or the new 102 and 104: which one your notice cites

Which Act's numbers a notice quotes depends on the year it's about, not on when it's sent. Section 536 of the 2025 Act keeps the 1961 Act running for any proceeding about a tax year that began before 1 April 2026 (Section 536, Income-tax Act 2025); from tax year 2026-27, the new Act's numbers apply to the same test.

What it covers	FY 2025-26 and earlier (1961 Act)	Tax year 2026-27 onward (2025 Act)
Credit found in your own books	Section 68	Section 102
Money/asset not in your books (undisclosed account)	Section 69A	Section 104
Tax on that income	Section 115BBE, flat 60% + surcharge/cess, no expense deduction	Section 195, flat 30% + surcharge/cess, no expense deduction
Penalty on top	Section 271AAC, 10% of that tax	Section 439 misreporting penalty, 200% of the tax

That 60% sits in section 115BBE (no expense deduction allowed); the 10% penalty sits in section 271AAC. The Finance Act, 2026 cut the new Act's rate to 30% and omitted its separate 10% penalty (section 443): an amount the officer adds under sections 102 to 106, not already offered in your return, is now a misreporting case under section 439(11)(g), with the penalty set at 200% of the tax on it (Income-tax Act, 2025 as amended by the Finance Act, 2026, ICAI edition, ss.195 and 439). Section 440 lets you apply to have that penalty waived if you pay the tax, interest and an additional tax in its place and don't appeal; whether that trade is worth it is a question for your CA. Lower rate, heavier penalty, as of October 2026.

One wrinkle either way: a bank pass book is only a copy of the bank's own books, not a book "maintained by the assessee", so money visible only in your statement, with no entry in your own ledgers, isn't technically a credit "in the books of the assessee" under section 68 (CIT v. Bhaichand H. Gandhi). That doesn't get you out of anything: officers then reach for section 69A (section 104 in the new Act) instead, asking the same question, nature and source. The Hyderabad order below cites both in one case.

Careful: Don't quote an all-in rate or treat 10%-to-200% as the whole story. Surcharge and cess sit on top of the 60%/30% figures and aren't worked out here; get your CA's exact number before estimating exposure.

What an unexplained credit actually costs

Example: Say your agency ran ₹1,20,00,000 of bank credits in FY 2025-26, ₹18,00,000 cash and ₹1,02,00,000 by UPI/NEFT/card, excluding self-transfers. ₹1,10,00,000 went straight back out to suppliers; ₹10,00,000 is your booked fee, with ₹6,00,000 declared net profit. But ₹9,00,000 of those credits, a relative's UPI with no booking reference plus two out-of-town cash deposits with no receipt, can't be tied to any booking.

Tied to a booking and a supplier payment, that ₹9,00,000 gives the officer nothing to add. Untied, in FY 2025-26 it can be added under section 68 or 69A and taxed at 60% (₹5,40,000, no expense set-off) plus a 10% penalty (₹54,000). The same gap in tax year 2026-27 is taxed at 30% (₹2,70,000, still no expense set-off) and can carry a misreporting penalty of 200% of that tax (about ₹5,40,000 on these numbers): lower rate, heavier penalty.

A third possibility: if your books can't separate client money from your own at all, an officer may estimate your profit as a percentage of every credit instead. The Mumbai case below shows how, and why it isn't a number to plan around. (Surcharge and cess apply on top of the figures above and aren't included; confirm with your CA.)

The Mumbai order: ₹2.29 crore deleted, ₹16.76 lakh still added

The agent sold air tickets, tours and passport and visa services as a proprietor, with eight bank accounts, six business and two personal, not all disclosed. The officer found credits of ₹1,70,37,539 in the accounts he hadn't disclosed; after ₹74,52,889 paid to other travel agents and ₹13,84,141 already declared, ₹82,00,509 was added as undisclosed receipts. Cash deposits of ₹1,46,77,930 were added separately under section 68. Total additions: ₹2,28,78,439, against a return of only ₹12,32,980.

On appeal, the deposits were accepted as real business receipts, not unexplained money, and ₹2,28,78,439 came off. But total credits were ₹3,17,15,469 against ticket sales of only ₹1,87,20,930 in the P&L, a gap of ₹1,29,94,539; reimbursements never went through the P&L, service-charge income had no stated basis, and the accounts were unaudited (the s.271B angle of this order, and what counts toward audit turnover, is covered in the tax-audit turnover post). Declared net profit was ₹8,61,044, just 2.7% of credits, so the first appeal authority estimated net profit at 8% of total credits, ₹25,37,237, and the Tribunal upheld the ₹16,76,193 difference, rejecting his argument that 8% should apply to turnover instead.

That 8% isn't a rate to plan around, and it isn't a presumptive scheme either; commission income is excluded from the section 44AD/58 presumptive routes anyway (see the 44AD trap for travel agents). It's what one authority found reasonable where the books gave it nothing better. The Hyderabad order below shows a similar 8% estimate set aside.

The Hyderabad order: tracing the money to the supplier

A faceless reassessment opened on ₹1,95,10,500 of cash deposited into a current account; the agent had returned only ₹3,73,930. The officer added net deposits after withdrawals, ₹1,91,22,122, an addition the order describes under both section 68 and section 69A, assessing ₹1,96,39,960. On first appeal, this was replaced with 8% of a ₹3,67,34,434 turnover shown in a receipts-and-payments account, an addition of ₹25,64,825, while noting no s.44AB audit, no TDS on payments to travel agencies and tour operators, and doubt whether the books s.44AA requires had been kept.

The Tribunal set this aside too: no material "irrefutably" showed the deposits came from business receipts, and the first appeal should have checked whether the money was transferred on to principal travel agents and tour operators in the normal course of business (ITA 955/Hyd/2025, 12 June 2026). Remanded to the officer: if the agent proves the deposits are part of his turnover, only the income element is to be added. The outcome isn't known as of October 2026. The question that bench put first is the one your books should answer: did the money go on to a real supplier, and can you prove it.

The Delhi order: books and the deposit pattern won

An IATA agent company selling air tickets through sub-agents had declared ₹1,48,57,830. During demonetisation, ₹2,24,01,455 was deposited in cash; the officer accepted ₹85,76,000 as opening cash and added the rest, ₹1,38,25,455, under section 68. The addition was deleted: cash is banked year after year in this business, about ₹40.08 crore in the seven months before 8 November 2016 against only ₹2.24 crore in the demonetisation window, and ₹8.57 crore in the same window a year earlier (ITA 4737/Del/2025, 8 May 2026). Those sales were already recorded and accepted, so there was no basis to tax them twice; the company's submissions listed PNR data, system-generated invoices, bank certificates and deposit slips.

An earlier 2022 Delhi case shows the gap when that's missing: a proprietor's ₹3,23,08,300 of cash deposits was added under section 69A in a best-judgment assessment; his explanation was that customers and sub-agents sometimes deposit cash directly into his account. In a later revision, the Principal Commissioner noted that no details of those customers and sub-agents had been given, and said that without them the cash receipts "cannot be verified" (ITA 859/Del/2022, 14 December 2022). The Tribunal called those remarks non-binding, and the merits were still pending on first appeal.

Payer detail, who deposited and for whom, is the gap that officer pointed to. A month-wise deposit table against the prior year's pattern is cheap to build, and it was part of what carried the 2026 deletion.

Book client money where an officer can follow it

The fix starts with how you book the money, not what you say at scrutiny. ICAI's tax-audit guidance draws the line you need: for a "travelling agent", amounts received from clients for payment to airlines, railways and the like, by way of reimbursement, aren't part of gross receipts, but a package tour sold for a consolidated sum is, because you're selling the package, not passing through someone else's bill (ICAI Guidance Note on Tax Audit, Revised 2025, paras 5.13(v), 5.14(viii)). Reimbursements credited to a separate account count toward audit turnover only to the extent of that account's net surplus. That's professional guidance on audit turnover, not a statute, but it's a sound guide to where client money should sit.

On GST invoices, the same split is the pure-agent rule: a cost paid to a third party on the client's authorisation, shown as its own line beside your fee with nothing added, can stay outside the value of your supply if every condition in Rule 33, CGST Rules, 2017 is met, and it's the same trail your income-tax reconciliation needs anyway. The accounting is simple: debit the customer for the full amount, credit the supplier for what's owed, credit only your margin to income; the rest sits as a debtor or creditor, not revenue (CAclubindia). Entries for this are in the accounting entries guide for travel agencies.

Three rules make this hold up at scrutiny:

• One collection account for client money. Every client payment lands in one account, or a small fixed set, nowhere else.
• Every account disclosed. List every bank account the business touches in your return, including any personal account a client has ever paid into. Undisclosed accounts were the Mumbai agent's first problem.
• No client money through personal accounts, going forward. If a client insists, move it to the business account the same day.

The booking-wise tie-out sheet

Build this monthly, not after a notice arrives. One row per bank credit, across every account the business uses.

credit_date,bank_account_last4,mode,utr_or_ref,payer_name_as_in_statement,payer_relation_to_traveller,booking_id,lead_traveller,client_invoice_no,amount_received,client_money_portion,fee_or_margin_to_income,supplier_name,supplier_paid_date,supplier_utr_or_portal_txn,supplier_amount,refund_out,balance_held,evidence_file

What the key columns do:

Column group	What goes in it	Why an officer asks for it
payer_name, payer_relation_to_traveller	As shown on the statement, plus self / spouse / parent / company / sub-agent / other	Missing payer detail for third-party cash was the gap flagged in the 2022 Delhi order
booking_id, client_invoice_no	The booking and invoice this credit belongs to	Ties a bank credit to a real sale, not just a deposit
client_money_portion, fee_or_margin_to_income	Split of amount_received, adding up to it less refund_out and balance_held	Separates pass-through money from what's actually yours
supplier_name, supplier_paid_date, supplier_utr_or_portal_txn	Who you paid onward, when, and the reference	The check the Hyderabad Tribunal said should have come first

Mark transfers between your own accounts self-transfer, no booking ID. For out-of-town client cash, keep the deposit slip and your receipt against that row (cash limits for client payments are covered in the section 269ST post). For a relative, company or sub-agent paying on a traveller's behalf, keep a one-line written confirmation. A package sold as principal at your own price is wholly yours; don't carve out a "client money" portion to shrink the number.

Check monthly: amount_received sums to total credits (minus self-transfers); no row lacks a booking_id, supplier payment or balance_held without a written note; the client ledger's closing balance equals held balances for undeparted trips; booked fees equal the sum of fee_or_margin_to_income.

A notice cites section 68 or 102: the pack for your CA

Answer at the assessment stage, in writing. In both the Mumbai and Hyderabad orders, evidence first produced at appeal went back to the officer, for a remand report in one and fresh verification in the other. Don't wait for the appeal to assemble this:

1. Every bank account held during the year, including any personal account a client paid into, full-year statements, not samples.
2. The tie-out sheet for every credit named in the notice, ideally the whole year.
3. Client (advance/reimbursement) and supplier ledgers, plus the P&L and balance sheet showing client money as a liability.
4. Client invoices showing the pass-through cost on a line separate from your fee.
5. Supplier proof per payment: portal/airline ledgers, ticket numbers/PNRs, hotel and DMC confirmations, visa fee receipts.
6. Cash book, deposit slips and cash receipts with payer names and phones, plus confirmations from anyone who deposited directly on a traveller's behalf.
7. Written confirmations for credits from relatives, companies or sub-agents: who paid, for whose booking.
8. A month-wise deposit table (cash and total) for the year under scrutiny and the year before.
9. A one-page reconciliation: total credits = client money paid to suppliers + money held + fees/commission + other receipts (loans, capital, refunds).
10. The return as filed, its computation, your AIS printout, and any feedback already filed on it.

Careful: A summary sheet alone won't hold up. In the orders above, the questions were about underlying supplier payments, invoices, deposit records and payer details, not a reconciliation total.

No two assessments run the same way; every order cited is fact-specific. This isn't legal advice and promises no outcome; take this pack to your CA before replying.

Common questions

Client ka paisa mere account mein aaya, kya woh meri income hai?

Not automatically, but it can be treated as yours unless you can show it isn't. Section 68 (section 102 from tax year 2026-27) lets the officer tax a credit when you can't explain its nature and source to the officer's satisfaction. Books showing the booking, the payer and the onward payment keep it as client money.

Is ticket money sitting in my bank account taxable?

Not by itself, only if you can't prove at scrutiny that it was client money that went on to a supplier. A receipt with no matching booking or onward payment is exactly what sections 68 and 69A (102 and 104 from tax year 2026-27) are built to catch.

What is section 102 of the new Income-tax Act?

The direct replacement for old section 68, asking the same question about a credit in your books. It applies from tax year 2026-27 onward; a notice about FY 2025-26 or earlier still cites the 1961 Act's section 68.

My relative's UPI paid for a client's trip. How do I explain it?

Record it the same day on the tie-out sheet: payer name as on the statement, relation to the traveller, the booking, and a one-line written confirmation from the relative. A note kept at the time beats reconstructing it after a notice.

Can a cash deposit from an out-of-town client trigger section 68?

Yes, if it stays unexplained. In the Mumbai order, clients from outside the city deposited cash straight into the agent's accounts; in the 2022 Delhi order, the gap flagged was missing details of the customers and sub-agents who had deposited directly. A deposit slip, your receipt and the client's confirmation give that cash a paper trail.

The short version

• Section 68 (becoming section 102 from tax year 2026-27) puts the burden of proof on you: every bank credit needs a nature and source on record, or it can be taxed as yours.
• Which Act's numbers a notice uses depends on the year it's about: FY 2025-26 and earlier uses sections 68, 69A, 115BBE, 271AAC; tax year 2026-27 onward uses 102, 104, 195, 439.
• The cost moved, not shrank: 60% tax plus 10% penalty falls to 30% from tax year 2026-27, but the misreporting penalty on an officer-added amount is now set at 200% of the tax.
• In a 2025 Mumbai order, ₹2.29 crore of additions went, but ₹16.76 lakh stayed on an 8% estimate because the books couldn't separate client money from income. That 8% isn't a rule; in a 2026 Hyderabad order, a similar 8% estimate was set aside and the case sent back.
• The question the 2026 Hyderabad bench put first: did the money go on to a real supplier, and can your books prove it.
• Book client money as a balance-sheet liability, in one collection account, with every bank account disclosed in your return.
• Build the tie-out sheet monthly and keep the document pack ready; in the Mumbai and Hyderabad orders, evidence first produced at appeal went back to the officer.