Sections 96 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Chapter V of the Act brings the income of other persons into the total income of an assessee. Section 96 covers income arising from a transfer where the asset itself is not transferred, section 97 covers income from a revocable transfer of assets, and section 98 defines "transfer" and "revocable transfer". This article reads the three sections as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked. If you have made settlements, trusts or similar arrangements, our tax planning advisory team can help you read them against these sections.
Income arising by virtue of a transfer without any transfer of the asset is chargeable as the income of the transferor (section 96). Income arising by virtue of a revocable transfer of assets is also the transferor's income (section 97(1)), unless the transfer is irrevocable for the beneficiary's or transferee's lifetime and the transferor derives no direct or indirect benefit (section 97(2)); but if the power to revoke arises, the income becomes the transferor's from that time (section 97(3)). A transfer is revocable if it provides for re-transfer, or gives the transferor a right to re-assume power over the income or assets (section 98).
Section 96: transfer of income without transfer of assets
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 the Act; and
- (b) where there is no transfer of the assets from which such income arises,
is chargeable to income-tax as the income of the transferor and is included in his total income.
Both limbs must be met. The Act comes into force on 1 April 2026 save as otherwise provided (section 1(3)); section 96 itself reaches a transfer made before or after commencement. The section does not use the words "clubbing"; it simply says the income is the transferor's.
Example (invented). Farida signs an agreement under which the interest from her bank deposit will be paid to her nephew every year, but the deposit itself remains hers and is not transferred. The interest arises to the nephew by virtue of a transfer, with no transfer of the asset from which it arises. Under section 96 it is chargeable as Farida's income and included in her total income.
Section 97: income from a revocable transfer of assets
Sub-section (1): the rule
All income arising to any person by virtue of a revocable transfer of assets is chargeable to income-tax as the income of the transferor and is included in his total income.
Sub-section (2): when the rule does not apply
Sub-section (1) does not apply where:
- (a) a transfer is by way of trust which is not revocable during the lifetime of the beneficiary, and in the 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).
The two clauses are joined by "and", so both must be satisfied. A transfer that is irrevocable but still gives the transferor a direct or indirect benefit from the income stays within sub-section (1).
Sub-section (3): when the power to revoke arises
Irrespective of sub-section (2), all income arising to any person by virtue of such transfer is chargeable as the income of the transferor as and when the power to revoke the transfer arises, and is then included in his total income. The section does not say what a "power to revoke" is in factual terms; section 98(b) supplies the meaning of "revocable".
Summary table
| Situation | Whose income | Section |
|---|---|---|
| Income arises by virtue of a transfer; the asset itself is not transferred | Transferor | 96 |
| Income arises from a revocable transfer of assets | Transferor | 97(1) |
| Transfer is irrevocable for the beneficiary's or transferee's lifetime and the transferor takes no direct or indirect benefit | Not covered by 97(1) | 97(2) |
| The power to revoke arises | Transferor, from that time | 97(3) |
Example (invented). Dhruv settles a trust for his daughter that cannot be revoked in her lifetime, and he receives no direct or indirect benefit from its income. Section 97(2) takes the trust outside section 97(1). If instead the trust deed lets him take back part of the assets, the transfer is revocable and the income is his under section 97(1).
Section 98: what "transfer" and "revocable transfer" mean
For the purposes of sections 96 and 97 and section 98 itself:
- (a) "transfer" includes any settlement, trust, covenant, agreement or arrangement; and
- (b) a transfer is deemed to be revocable if:
- (i) 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; or
- (ii) 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.
The word "includes" widens the ordinary meaning; the section does not give an exhaustive list. A provision for a re-transfer of "any part" of the income or assets is enough to make the whole transfer revocable under (b)(i).
Related provisions
Section 99 includes in an individual's total income the income of the spouse, son's wife, minor child and certain others; it is covered in our article on sections 99 and 100. Section 100 makes the person in whose name an asset stands liable to pay the tax attributable to the income included in the assessee's income. For the chapter as a whole see the Chapter V guide.
Checklist for a trust or settlement
- Is any part of the income or assets capable of coming back to the transferor? If so, section 98(b)(i) makes the transfer revocable.
- Does the transferor keep any right to re-assume power over the income or assets? Section 98(b)(ii).
- Is the trust or transfer irrevocable for the beneficiary's or transferee's lifetime?
- Does the transferor receive any direct or indirect benefit from the income? If so, section 97(2) is not satisfied.
- Could a power to revoke arise later? Section 97(3) taxes the transferor when it does.
Need help with a trust or settlement?
How a deed is worded decides whose income it is. Our tax planning advisory team can review a settlement, trust or family arrangement against sections 96 to 98 before it is signed.
Key takeaways
- Section 96 taxes the transferor where income is transferred without the asset.
- Section 97(1) taxes the transferor on income from a revocable transfer of assets.
- The exception in section 97(2) needs both irrevocability and no direct or indirect benefit to the transferor.
- When a power to revoke arises, the income is the transferor's from then (section 97(3)).
- "Transfer" includes any settlement, trust, covenant, agreement or arrangement.
Read next
- Sections 99–100: clubbing of spouse and minor child income
- Sections 101–103: total income, unexplained credits and unexplained investment
- Section 108: set off within the same head
- Income-tax Act 2025 Chapter V
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.