Chapter V - Income of Other Persons Included in Total Income of Assessee
Section 97
Section 97: chargeability of income where the transfer of an asset is revocable
Section 97 extends the clubbing logic of Section 96 to cases where the asset itself (not just the income from it) has been transferred, but the transfer is revocable. If the giver retains the power to take the asset back, the income it produces continues to be taxed as the giver's own income - unless the transfer is a genuinely irrevocable trust or arrangement from which the giver derives no benefit.
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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
(1) All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as income of the transferor and shall be included in his total income.
(2) The provisions of sub-section (1) shall not apply,— (a) where a transfer is by way of trust which is not revocable during the lifetime of the beneficiary and in case of any other transfer, is not revocable during the lifetime of the transferee; and (b) the transferor does not derive any direct or indirect benefit from such income in cases referred to in clause (a).
(3) Irrespective of the provisions of sub-section (2), all income arising to any person by virtue of such transfer shall be chargeable to income-tax as income of the transferor as and when the power to revoke such transfer arises, and shall then be included in his total income.
Introduction
An asset transfer whose income can return to the transferor remains within the transferor's tax base. The limited exception depends both on an extended period without revocation and on the transferor receiving no direct or indirect benefit.
Key takeaways
Revocable asset transfer
Income arising through a revocable transfer of assets is included in the transferor’s total income.
Limited exception
An irrevocable transfer lasting for the beneficiary’s or transferee’s lifetime may escape this rule only while the transferor has no direct or indirect benefit; income reverts to the transferor’s tax base once revocation becomes possible.
The general rule
All income arising to any person by virtue of a revocable transfer of assets is chargeable to income-tax as income of the transferor, and is included in the transferor's total income.
The exception: genuinely irrevocable trusts and transfers
This rule does not apply where the transfer is by way of a trust that is not revocable during the beneficiary's lifetime (or, for any other kind of transfer, is not revocable during the transferee's lifetime), and the transferor derives no direct or indirect benefit from the income in either case.
What happens if the power to revoke later arises
Even where the exception above initially applies, if and when the power to revoke the transfer arises, all income arising from that point becomes chargeable to income-tax as income of the transferor, and is included in the transferor's total income from that time.
Step-by-step flow for applying Section 97
- 1
Does a person receive income from assets transferred to him or to a trust?
- No (only income transferred): See Section 96.
- Yes: Go to the next step.
- 2
Is the transfer revocable?
Section 98 treats a transfer as revocable if it provides for re-transfer of income or assets to the transferor or gives him a right to re-assume power over them.
- Yes: Income is taxed as the transferor's income (Section 97(1)).
- No: Go to the next step.
- 3
Is it irrevocable for the beneficiary's lifetime (trust) or the transferee's lifetime (other transfer), and does the transferor derive no direct or indirect benefit?
- Both conditions met: Section 97(1) does not apply; the income is not taxed in the transferor's hands.
- Either fails: Income is taxed as the transferor's income.
- 4
Does a power to revoke arise later?
Under Section 97(3), from when the power arises, the income is chargeable as the transferor's income.
Practical checklist
Do
- Read revocation clauses against the beneficiary's or transferee's lifetime, as applicable.
- Check whether the transferor gets any direct or indirect benefit from the income and track when a revocation power may arise.
Avoid
- Do not rely on the word 'irrevocable' alone without reviewing the actual powers retained.
- Do not continue the exception once a power to revoke arises.
Illustrative example
Worked example: a family trust with a later power to revoke
Hypothetical facts (illustration only, not a real taxpayer): Mrs. Shah settles shares on a trust for her niece. The deed is irrevocable during the niece's lifetime, and Mrs. Shah takes no benefit. The trust earns dividends of ₹1,20,000 a year. In a later year, a deed amendment gives Mrs. Shah a right to reassume control of the shares.
Initial years
The trust is not revocable during the beneficiary's lifetime and Mrs. Shah derives no benefit, so Section 97(2) keeps the ₹1,20,000 dividend out of her income.
Power to revoke arises
Once the amendment gives her power to reassume control, the transfer becomes revocable in the Section 98 sense and Section 97(3) applies.
After that point
Dividend income of ₹1,20,000 a year arising after the power arises is chargeable as her income.
Outcome
- No clubbing while both Section 97(2) conditions hold.
- Clubbing of ₹1,20,000 a year applies once the power to revoke arises.
Glossary
- Revocable transfer
- A transfer that permits the transferor to regain the asset or income under the statutory definition in Section 98.
- Transferor
- The person who transferred the income-producing asset.
Frequently asked questions
Is income from every asset transfer taxed back to the transferor?
No - only where the transfer is revocable, or where a trust/transfer that was initially irrevocable later becomes revocable (i.e. the power to revoke arises). A genuinely irrevocable trust or transfer from which the transferor gets no benefit is excluded.
What if a trust is irrevocable now but could become revocable later?
Once the power to revoke the transfer arises, income arising from that point is taxed as the transferor's own income and included in their total income, even if the arrangement was treated as irrevocable earlier.
Does any benefit to the transferor defeat the irrevocable-trust exception?
Yes. Section 97(2)(b) requires that the transferor derive no direct or indirect benefit from the income; if he does, the exception is not available.
Need help applying this provision to your situation?
Get clarity on clubbing of income rules from our tax teamLast updated 9 October 2026