Section 98 of the Income-tax Act, 2025 — Meaning of "Transfer" and "Revocable Transfer" for Clubbing of Income

In plain language

What Section 98 actually says

There is a common myth that Section 98 is the "main clubbing of spouse and minor child income" section. It is not. Section 98 of the Income-tax Act, 2025 is a pure definitions section titled "'Transfer' and 'revocable transfer' defined." It supplies the meaning of two crucial terms used in the revocable-transfer clubbing rules. It is the exact re-numbered successor of Section 63 of the old Income-tax Act, 1961 — the language is virtually identical, only the section number changed.

The actual clubbing of income of spouse, minor child, son's wife and others is dealt with by Section 99 (old Section 64). Section 98 is the interpretation clause that makes Sections 96 and 97 work.

The two definitions in Section 98

• "Transfer" — is defined very widely. It includes any settlement, trust, covenant, agreement or arrangement. The point of this wide net is substance over form: you cannot escape clubbing merely by dressing up an income diversion as a "family arrangement" or a "trust deed."
• "Revocable transfer" — a transfer is treated as revocable if the transfer document either (a) contains any provision for the re-transfer, directly or indirectly, of the whole or any part of the income or assets to the transferor, or (b) gives the transferor, in any way, a right to re-assume power, directly or indirectly, over the whole or any part of the income or the assets.

Why these definitions matter

Section 97 (old Section 61) says that where there is a revocable transfer of an asset, the income from that asset is clubbed back and taxed in the hands of the transferor — not the person who received it. But the word "revocable" needs a legal meaning, otherwise the rule cannot be applied. Section 98 provides that meaning. In short:

• If you keep any hidden hook to take the income or the asset back, or to control it again — the transfer is revocable, and the income stays taxable in your hands (Section 97).
• If you give it away cleanly with no such power retained, it may fall outside the revocable-transfer net.

Who it applies to

Section 98 applies to every taxpayer who transfers an asset or income — most commonly individuals and HUFs doing family/estate planning, creating trusts, gifting property, or settling assets. It is relevant whenever the tax officer must decide whether a transfer is revocable so that clubbing under Section 97 kicks in.

Key conditions and limits

• The definition of "transfer" is inclusive, not exhaustive — courts read it broadly to cover indirect arrangements.
• A power to re-assume control counts even if it is indirect — a benami or roundabout right to take back income makes the transfer revocable.
• Section 98 only defines; the charging/clubbing effect comes from Sections 96 and 97. There is no rate or exemption limit inside Section 98 itself.

How it interacts with related sections

• Section 96 (old Sec 60): transfer of income without transferring the asset — income still taxed on the transferor.
• Section 97 (old Sec 61): income from a revocable transfer of an asset is clubbed with the transferor. This is the section Section 98's definitions serve.
• Exception (old Sec 62): where a transfer is not revocable during the lifetime of the beneficiary (or, for other transfers, until a specified event/period) and the transferor derives no direct or indirect benefit, the revocable-transfer clubbing does not apply until the power to revoke arises.
• Section 99 (old Sec 64): the substantive spouse / minor child / son's wife clubbing rules. Note: even a genuinely irrevocable transfer to a spouse can still be caught by Section 99 if the relationship-based conditions are met.

Practical implications

For genuine estate and succession planning, the message from Section 98 is simple: if you want the income to be taxed in the recipient's hands and not clubbed back to you, make the transfer truly clean. Do not keep any clause letting you take the asset or income back, and do not retain any power to re-control it. The moment such a power exists — even indirectly — the transfer becomes "revocable" and the income boomerangs back to your tax return.