Transfer of Income Without Transfer of Assets and Revocable Transfers: Sections 96, 97 and 98 (Income Tax Act 2025)

If you pass income to another person without handing over the asset that earns it, or you transfer an asset in a way that lets you take it back, the income stays taxable in your hands. Section 96 covers income transferred without the asset. Section 97 covers revocable transfers of assets, and section 98 defines "transfer" and "revocable transfer". These sit in Chapter V of the Income-tax Act, 2025 (as amended by the Finance Act, 2026), which brings other persons' income into the assessee's total income.

The point of the rules is simple. Tax follows the person who really controls the income, not the person whose name receives it. Each provision below is cited to its section number. Last reviewed against that text on 10 November 2026.

What does section 96 say about transferring income without the asset?

Section 96 says that all income arising to any person by virtue of a transfer is chargeable as the income of the transferor (the person who made the transfer) and included in the transferor's total income, if two things are true:

• the transfer may be revocable or not, and may have been made before or after the Act began (section 96(a)); and
• there is no transfer of the assets from which that income arises (section 96(b)).

So when you keep the asset but sign away its income, for a year or for ten, the income is still yours for tax. Whether the arrangement can be revoked does not matter under section 96.

What is a revocable transfer under section 97?

Section 97(1) deals with the case where the asset itself is transferred but the transfer is revocable. All income arising to any person by virtue of a revocable transfer of assets is chargeable as the income of the transferor and included in the transferor's total income.

Section 98(b) says when a transfer is treated as revocable. A transfer is deemed revocable if either of these applies:

1. it contains any provision for the direct or indirect re-transfer of the whole or any part of the income or assets to the transferor (section 98(b)(i)); or
2. it in any way gives the transferor a right to re-assume power, directly or indirectly, over the whole or any part of the income or assets (section 98(b)(ii)).

Section 98(a) defines "transfer" widely. It includes any settlement, trust, covenant, agreement or arrangement, so a formal trust deed and an informal family arrangement are both caught.

When is a transfer NOT clubbed with the transferor's income?

Section 97(2) switches off section 97(1) only when both conditions below are met:

• Clause (a): a transfer by way of trust is not revocable during the lifetime of the beneficiary; for any other transfer, it is not revocable during the lifetime of the transferee; and
• Clause (b): the transferor does not derive any direct or indirect benefit from the income.

A transferor who keeps a benefit fails clause (b), and a transfer that can be revoked within the relevant lifetime fails clause (a). In both cases the income is taxed on the transferor.

Section 97(3) adds one more rule. Even where section 97(2) applies, all income arising by virtue of the transfer becomes the transferor's income as and when the power to revoke the transfer arises, and is then included in the transferor's total income.

How do I decide whose income it is?

Worked example 1: income assigned without the asset (tax year 2026-27)

Assumptions: Ravi earns a salary of Rs 12,00,000 in tax year 2026-27 and holds shares that pay a dividend of Rs 60,000 a year. He signs an agreement giving his sister Meena the dividends from these shares for five years, but the shares stay in his name. His interest income is Rs 15,000.

Step	Item	Amount (Rs)
1	Salary	12,00,000
2	Interest	15,000
3	Dividend assigned to Meena, no transfer of the shares (section 96)	60,000
4	Ravi's income for this part of the computation (1 + 2 + 3)	12,75,000

The dividend arises from shares Ravi still owns, so section 96(b) applies. Meena receives the cash, but Ravi includes the Rs 60,000 in his total income. Meena does not include it in hers on the basis of the agreement. If the shares themselves had been gifted outright and irrevocably, section 96 would not be the provision to look at.

Worked example 2: revocable trust (tax year 2026-27)

Assumptions: Meena settles Rs 20,00,000 in a trust for her adult son. The deed says she can cancel the trust and take the money back at any time. In 2026-27 the trust earns Rs 1,60,000 of interest and Rs 40,000 of rent.

1. The deed gives Meena a right to take back the assets, so the transfer is deemed revocable under section 98(b).
2. Section 97(2)(a) cannot apply, because the trust is revocable during the beneficiary's lifetime.
3. Section 97(1) applies: income = Rs 1,60,000 + Rs 40,000 = Rs 2,00,000.
4. Meena adds Rs 2,00,000 to her total income for 2026-27, whoever receives the cash.

Real-life example 1: the irrevocable trust that later becomes revocable

Anil settles a trust for his daughter that cannot be revoked for two years. In 2026-27 the trust earns Rs 1,50,000, and Anil gets no benefit from it, so section 97(2) applies and the income is not his. The deed says that on 1 April 2028 Anil may revoke it. Under section 97(3), once that power arises, the trust's income becomes Anil's income from that point, and he includes it in his total income.

Real-life example 2: the "gift" that is not a gift

Sunita transfers a flat to her son by deed, but the deed says the flat returns to her if she is unhappy with how he looks after it. A clause for re-transfer to the transferor is exactly what section 98(b)(i) describes. The transfer is revocable, so the rent from that flat is Sunita's income under section 97(1), even though the flat stands in her son's name.

Revocable and irrevocable transfers: what is the difference for tax?

Point	Revocable transfer	Irrevocable transfer
Can the transferor take it back?	Yes, or can re-assume power over the income or assets (section 98(b))	No, during the beneficiary's lifetime (trust) or the transferee's lifetime (other transfers)
Whose income	Transferor (section 97(1))	Recipient, if the transferor gets no direct or indirect benefit (section 97(2))
If the power to revoke arises later	Not applicable, already the transferor's	Transferor's income from then (section 97(3))
Other clubbing provisions	Check section 99 if the recipient is a spouse, son's wife or minor child	Section 99 can still apply to such recipients

Does a buy-back clause make a transfer revocable?

Yes, if it lets the income or assets come back to the transferor. Suppose Ravi hands a rented shop to a friend by agreement, with a clause that he can buy it back at the original price whenever he wants. That is a provision for re-transfer to the transferor, so section 98(b)(i) treats the transfer as revocable and the rent is Ravi's income under section 97(1).

Quick reference

Situation	Provision	Whose income
Income transferred, asset not transferred (revocable or not)	Section 96	Transferor
Asset transferred, but revocable	Section 97(1), 98(b)	Transferor
Asset transferred, not revocable in the lifetime of beneficiary or transferee, and no benefit to transferor	Section 97(2)	Recipient
Irrevocable transfer, but the power to revoke arises	Section 97(3)	Transferor, from then

What are the common mistakes?

• Assigning income and keeping the asset. Giving away the dividend or rent while the shares or property stay in your name is the section 96 case.
• Forgetting that "transfer" is wide. Under section 98(a) an agreement or arrangement counts, not only a registered deed.
• Treating section 97(2) as a one-condition test. Non-revocability and no benefit to the transferor must both hold.
• Ignoring indirect benefit. Section 97(2)(b) speaks of direct or indirect benefit, so benefit routed through a relative or an entity can still count.
• Missing a later revocation power. Section 97(3) can pull the income back into the transferor's total income when the power arises.

Where is this in the Act and Rules?

• Section 96: transfer of income without transfer of assets
• Section 97(1): revocable transfer of assets; 97(2): exceptions; 97(3): income when the power to revoke arises
• Section 98(a) and 98(b): meaning of "transfer" and "revocable transfer"
• Rule 213(5)(b)(i): for a lower-deduction certificate on dividends, the dividend must not be includible in anyone else's total income under sections 96 to 99

How can CA firms keep track of this?

For a CA firm, the hard part is noticing the arrangement at all: a trust deed, a family agreement, a dividend mandate. Finexo's practice management software lets you keep such documents and client notes against each client file and track the review tasks each year. It does not decide the tax treatment for you. For related rules on income of a spouse or minor child, see our guide to clubbing of income.

This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026). It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.