Section 97 of the Income-tax Act, 2025 — Income Arising from Revocable Transfer of Assets

In plain language

What Section 97 says in plain English

Section 97 of the Income-tax Act, 2025 is an anti-avoidance rule inside the "clubbing of income" chapter (Sections 96 to 100). It says one simple thing: if you transfer an asset but keep a string attached — a right to take it back or take back its income — then the income from that asset is still taxed in YOUR hands, not in the hands of the person you gave it to. The law calls this a revocable transfer.

The idea is to stop tax games. Without this section a person in the 30% slab could "transfer" a fixed deposit to a low-income relative on paper, let the interest be taxed at 0% or 5%, and quietly reclaim the FD later. Section 97 shuts that door.

Who does it apply to?

• Any transferor — an individual, HUF, firm, or company that transfers an asset while retaining a power to revoke.
• It applies regardless of the relationship between transferor and transferee. Unlike Section 99 (spouse/minor clubbing), the transferee need not be a relative.
• It covers any type of asset — shares, property, deposits, mutual funds, business assets — and any "transfer" including a settlement, trust, covenant, agreement or arrangement (as defined in Section 98).

When is a transfer "revocable"? (read with Section 98)

Section 98 of the 2025 Act defines it. A transfer is treated as revocable if:

• It contains any provision for the direct or indirect re-transfer of the whole or any part of the income or the asset back to the transferor; OR
• 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 the asset.

Even an indirect or partial right to take back is enough. The power only has to exist — you don't need to actually exercise it.

The exceptions — when income is NOT clubbed

Section 97 does not apply, and the income is taxed in the transferee's hands, where the transfer is:

• By way of a trust that is not revocable during the lifetime of the beneficiary; or
• Any other transfer that is not revocable during the lifetime of the transferee; AND
• In both cases, the transferor derives no direct or indirect benefit from such income.

Important catch: even for a genuinely irrevocable transfer, the moment the power to revoke arises (say, on the transferee's death or when a lock-in period ends), Section 97 kicks back in and the income from that point is again taxed in the transferor's hands.

How it interacts with related sections

• Section 96 handles transfer of income without transferring the asset. Section 97 handles transfer of the asset with a revocability string.
• Section 99 clubs income of spouse, minor child, son's wife etc. Section 97 is broader on the "revocable" angle but is asset-based.
• Section 100 allows the transferor, after paying tax, to recover the tax from the transferee who actually holds the income/asset.

Practical implications

• If you want income to genuinely shift to another person, make the transfer outright and irrevocable, with no benefit flowing back to you.
• Clubbed income keeps its original character (interest stays interest, capital gain stays capital gain) and is taxed at the transferor's slab.
• The transferor must disclose this income in their own ITR under the relevant head; hiding it invites additions, interest and penalty. As YMYL guidance, always confirm the current wording of Sections 97 and 98 before acting on a specific arrangement.