Sub-section (1) charges all income arising to any person by virtue of a revocable transfer of assets as income of the transferor and includes it in his total income. Sub-section (2) lifts that charge where the transfer is by way of a trust not revocable during the beneficiary's lifetime, or in any other case not revocable during the transferee's lifetime, and where the transferor derives no direct or indirect benefit from the income. Sub-section (3) overrides the exception: notwithstanding sub-section (2), the income is chargeable to the transferor as and when the power to revoke arises, and is then included in his total income.
Why it is there
It stops income being diverted to another person while the transferor keeps the ability to take the assets back. The exception in sub-section (2) recognises transfers that are irrevocable for a lifetime and from which the transferor gains nothing, but sub-section (3) makes that relief temporary — the moment the power to revoke arises, the income comes back to the transferor.
Who it applies to
The transferor of assets under a revocable transfer
A person to whom income arises by virtue of such a transfer
A settlor of a trust and the beneficiary under it
What this means in practice
Both conditions in sub-section (2) must hold together — irrevocability for the lifetime of the beneficiary or transferee, and no direct or indirect benefit to the transferor — so a benefit taken back in any form defeats the exception even where the deed is irrevocable. Where irrevocability is time-limited rather than lifelong, sub-section (3) brings the income into the transferor's hands from the year the power to revoke arises, not only when it is exercised.
An example
Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.
An individual settles a share portfolio yielding about Rs. 6 lakh a year on trust for his nephew, the deed being irrevocable for eight years. That does not reach the sub-section (2) exception, which requires the trust to be not revocable during the lifetime of the beneficiary, so sub-section (1) charges the whole Rs. 6 lakh a year to the settlor from the outset. Even if the deed had been irrevocable for the nephew's lifetime, the exception fails the moment the settlor takes any direct or indirect benefit from that income — clauses (a) and (b) are joined by 'and'. And where irrevocability is time-limited, sub-section (3) brings the income back into the settlor's hands as and when the power to revoke arises, whether or not he ever exercises it.
Where you meet this section
In the transferor's own return, where income arising to someone else has to be included in his total income, and in an assessment order or a notice asking why income shown as the trust's or the transferee's was not offered by the transferor. The deed itself is the document the question is decided on.
The words themselves
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.
s.97(1), Income-tax Act, 2025.
What people get wrong
Treating sub-section (2) as a permanent exclusion. Sub-section (3) charges the income to the transferor as and when the power to revoke arises, whether or not it is exercised.
Reading the exception as an either-or test. Clauses (a) and (b) are joined by 'and' — lifetime irrevocability alone is not enough if the transferor derives any direct or indirect benefit from the income.
Assuming a trust deed labelled irrevocable is safe. What matters is that it is not revocable during the lifetime of the beneficiary, or in other transfers during the lifetime of the transferee.
What this replaced
The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.
A circular binds the department, not you and not a court. Every one below was written under the 1961 Act; it reaches this section because the department’s own concordance carries the provision it names to this one.
A notification is made under a power the Act gives and, within that power, is law. These too were made under the 1961 Act and are placed here by the department’s concordance.
Notification No. 28 — Income-tax (Sixth Amendment) Rules, 2009 - Insertion of rule 37BA and 37-I 2009-03-16
Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 97. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.
UTI Mutual Fund v ITOHigh CourtHelps taxpayertagged s.61 Can they attach your bank account while the stay application is still pending?
What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.