Section 96 of the Income-tax Act, 2025 — Transfer of Income Without Transfer of Assets (Clubbing of Income)

In plain language

What Section 96 says in plain English

Section 96 of the Income-tax Act, 2025 is the first of the "clubbing of income" provisions (Sections 96 to 100). It targets a very simple tax dodge: giving away the income from an asset while keeping the asset itself. The law says that if you divert income to another person but continue to own the underlying asset, that income is still taxed in your hands — not in the hands of the person who actually received it.

The exact wording is: "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 the 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."

This provision is the direct successor of Section 60 of the old Income-tax Act, 1961. The wording is essentially unchanged; only the section number has moved (60 → 96) as part of the 2025 Act's renumbering. It takes effect from 1 April 2026.

Who does it apply to

• Everyone — not just families. Unlike Section 99 (spouse/minor child clubbing), Section 96 applies to a transfer of income to any person. No relationship is required. You can divert income to a friend, an employee, a charity or a company — it still gets taxed to you.
• The transferor (the person who owns the asset and gives away its income) bears the tax.
• The transferee (the person who receives the income) is not taxed on it, avoiding double taxation.

The key conditions

• There is a transfer of income. You have arranged for the income stream to go to someone else — e.g. by directing rent, interest or dividends into their account.
• The asset itself is NOT transferred. This is the heart of the section. Legal ownership of the property, shares, debentures or deposit stays with you.
• Revocable or irrevocable makes no difference. Even a permanent, irrevocable gift of only the income (with the asset retained) is caught. This was confirmed judicially under the old law (e.g. CIT vs S.R. Patel, Gujarat High Court).
• Timing is irrelevant. It applies whether the transfer was made before or after the Act commenced.

How it interacts with related sections

• Section 97 (old Sec 61) — deals with revocable transfer of assets. If you transfer the asset but keep a right to take it back, the income is clubbed to you. Section 96 covers income-only diversion; Section 97 covers revocable asset transfers.
• Section 98 (old Sec 63) — defines "transfer" and "revocable transfer" for both Sections 96 and 97.
• Section 99 (old Sec 64) — clubs income of spouse, minor child, son's wife etc. This needs a family relationship; Section 96 does not.
• Section 100 (old Sec 65) — allows the tax department to recover the tax from the transferee if it cannot recover from the transferor.

Practical implications

• You cannot split income by mere assignment. Simply asking a tenant to pay rent into someone else's account, or gifting only the interest on your fixed deposit, does not shift the tax.
• To genuinely shift income, transfer the asset itself — irrevocably and for adequate consideration (and even then, Section 99 may apply if it goes to a spouse or minor).
• No specific ITR form or separate rate applies. The clubbed income is simply added to the transferor's total income and taxed at their normal slab rates under the applicable regime.
• Genuine irrevocable transfers of the asset for a period may escape clubbing under the Section 97/98 framework — but income-only diversion never escapes Section 96.