Chapter V - Income of Other Persons Included in Total Income of Assessee
Section 96
Section 96: transfer of income without transfer of assets
Section 96 opens the Act's 'clubbing' chapter, which taxes certain income of other persons as if it were the taxpayer's own income. This particular section targets a simple avoidance technique: giving away the right to receive income from an asset, while keeping ownership of the asset itself. The Act treats that income as still belonging to - and taxable in the hands of - the person who made the transfer.
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Need advice on Section 96?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
All income arising to any person by virtue of a transfer,— (a) whether revocable or not, and whether effected before or after the commencement of this Act; and (b) where there is no transfer of assets from which such income arises, shall be chargeable to income-tax as the income of the transferor and shall be included in his total income.
Introduction
Giving someone the right to receive income while retaining the underlying asset does not shift the tax on that income. Section 96 attributes it to the transferor regardless of whether the income transfer can be revoked.
Key takeaways
Income transferred alone
If a person transfers income while keeping the asset that produces it, the income remains taxable in the transferor’s total income.
Revocability is irrelevant here
This rule applies whether that transfer of income is revocable or irrevocable.
What Section 96 says
All income arising to any person by virtue of a transfer - whether revocable or not, and whether the transfer was made before or after this Act commenced - is chargeable to income-tax as the income of the transferor and is included in the transferor's total income, provided there was no transfer of the underlying asset from which the income arises.
The key condition: no asset transfer
This section applies specifically where only the income (or the right to receive it) has been transferred, but the asset that generates that income remains with the original owner. If the asset itself is genuinely transferred, this particular clubbing rule does not apply (though Section 97 may apply to certain asset transfers that are revocable).
Asset and income must be distinguished
Establish who owns the income-producing asset and whether the arrangement transfers that asset or only its income stream. If the asset remains with the transferor, Section 96 applies to the income passed to another person.
Step-by-step flow for applying Section 96
- 1
Does a person receive income by virtue of a transfer made by someone else?
"Transfer" includes any settlement, trust, covenant, agreement or arrangement (Section 98).
- No: Section 96 does not apply.
- Yes: Go to the next step.
- 2
Was the asset producing the income itself transferred?
- Yes: Section 96 does not apply; examine Section 97 for a transfer of assets.
- No (only the income was diverted): Go to the next step.
- 3
Is the transfer revocable or irrevocable, old or new?
It does not matter. Section 96 applies whether the transfer is revocable or not and whether made before or after the Act began.
- 4
Tax the income in the transferor's hands
The income is chargeable as the transferor's income and included in his total income.
Practical checklist
Do
- Review the deed or agreement for the actual property transferred and the recipient of income.
- Include the transferred income in the transferor's tax computation when the asset itself was not transferred.
Avoid
- Do not treat an irrevocable assignment of income alone as an assignment of the underlying asset.
- Do not confuse this rule with Section 97, which deals with a revocable transfer of assets.
Illustrative example
Worked example: assigning rent without transferring the house
Hypothetical facts (illustration only, not a real taxpayer): Mr. Arora owns a let-out flat. By a written agreement he directs that the entire rent of ₹2,40,000 for the year be paid to his brother. Ownership of the flat stays with Mr. Arora, and the agreement says it cannot be revoked.
Transfer of income
The agreement is a transfer under which the brother receives income.
No transfer of the asset
The flat itself is not transferred, so clause (b) is met.
Irrevocability is irrelevant
Clause (a) applies whether or not the transfer is revocable.
Outcome
- The ₹2,40,000 rent income is chargeable as Mr. Arora's income and included in his total income.
- If he had transferred the flat itself, the question would move to Section 97.
Glossary
- Income transfer
- An arrangement passing the right to receive income to someone else.
- Underlying asset
- The property or right that generates the income in question.
Frequently asked questions
Does it matter whether the income transfer is revocable or irrevocable?
No - Section 96 applies whether the transfer of income is revocable or not, as long as there was no corresponding transfer of the underlying asset.
How is Section 96 different from Section 97?
Section 96 deals with a transfer of income alone, with no transfer of the asset generating it. Section 97 deals with a transfer of the asset itself, where that asset transfer is revocable.
Does Section 96 apply to an arrangement made before the Income-tax Act, 2025 came into force?
Yes. Section 96(a) covers a transfer whether effected before or after the commencement of the Act.
Need help applying this provision to your situation?
Get clarity on clubbing of income rules from our tax teamLast updated 9 October 2026