Income Tax Act 2025: Section 97 for Tax Year 2026-27

Chargeability of income in transfer of assets

[Section-97 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Section 97(1) of Income Tax Act 2025

97(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.

Section 97(2) of Income Tax Act 2025

97(2)The provisions of sub-section (1) shall not apply, if such transfer—

• (a) is by way of trust which is not revocable during the lifetime of the beneficiary; or
• (b) and in case of any other transfer, is not revocable during the life time of the transferee,

and the transferor does not derive any direct or indirect benefit from such income in cases referred to in clauses (a) and (b).

Section 97(3) of Income Tax Act 2025

97(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 than be included in his total income.

FAQs on Section 97 of Income Tax Act 2025

Q1. What does Section 97(1) of the Income Tax Act, 2025 state about revocable transfers?
All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and included in their total income.

Q2. Who is taxed in the case of a revocable transfer of assets?
The transferor is taxed on the income arising from a revocable transfer of assets.

Q3. What is a revocable transfer under Section 97?
A revocable transfer is one where the transferor retains the right to reassume power or ownership over the asset or its income.

Q4. Is income from an irrevocable transfer also taxed in the hands of the transferor?
Not generally, unless conditions under Section 97(3) are met.

Q5. When does Section 97(2) provide an exception to Section 97(1)?
Section 97(2) exempts certain irrevocable transfers from being taxed in the hands of the transferor if specific conditions are fulfilled.

Q6. What are the conditions under Section 97(2) for the exception to apply?
The transfer must be:
(a) by way of a trust not revocable during the beneficiary’s lifetime; or
(b) otherwise not revocable during the transferee’s lifetime;
and the transferor must not derive any direct or indirect benefit from the income.

Q7. Can a transferor ever be taxed on an irrevocable transfer?
Yes, under Section 97(3), once the power to revoke arises, income from such transfer becomes taxable in the hands of the transferor.

Q8. What triggers taxation under Section 97(3)?
Taxation is triggered when the power to revoke the transfer arises, regardless of whether it is exercised.

Q9. What is the relevance of the transferor deriving a benefit under Section 97(2)?
If the transferor derives any direct or indirect benefit from the income, the exemption under Section 97(2) does not apply.

Q10. Is the income included in the transferor’s total income immediately upon creation of the revocable transfer?
Yes, under Section 97(1), income is included in the transferor’s total income from the outset in a revocable transfer.

Q11. How is income taxed if the power to revoke does not arise during the assessment year?
If the power to revoke does not exist or arise, and the transfer is irrevocable under Section 97(2), the income may not be taxed in the hands of the transferor.

Q12. Does the timing of revocation affect the chargeability of income?
Yes, under Section 97(3), income becomes chargeable in the hands of the transferor as and when the power to revoke arises.

Q13. Can income be taxed in both the transferee’s and transferor’s hands?
No, the Act ensures income is taxed only once. If taxed in the transferor’s hands under Section 97, it is not taxed again in the transferee’s.

Q14. Does Section 97 apply to transfers made before 1st April 2026?
No, it applies w.e.f. 1st April, 2026, under the Income Tax Act, 2025.

Q15. Can a trust ever be treated as revocable?
Yes, if the trust is revocable during the beneficiary’s lifetime or provides a benefit to the transferor, it can be treated as revocable under Section 97.