Section 98 Income Tax Act 2025: What Is a Revocable Transfer?

Section 98 explains what counts as a transfer and when a transfer is treated as revocable for the rules that attribute transferred income to its original owner.

Legal position: Section 98 forms part of Chapter V of the Income-tax Act, 2025 (Act 30 of 2025), effective from 1 April 2026. It supplies definitions for Sections 96 and 97. The corresponding earlier provision was Section 63 of the Income-tax Act, 1961.

What does Section 98 of the Income-tax Act, 2025 provide?

Section 98 defines two expressions used in deciding who must pay tax on income connected with a transfer: transfer and revocable transfer. Its definition is broad enough to cover legal instruments and arrangements beyond an outright sale or gift. Section 98 is primarily a definition provision; the rules determining whose income is taxed appear in Sections 96 and 97.

Section 98: statutory definitions

Section 98(a) - Transfer: For the purposes of Sections 96, 97 and 98, the expression transfer includes any settlement, trust, covenant, agreement or arrangement.

Section 98(b)(i) - Return of income or assets: A transfer is deemed revocable if it contains a provision for the direct or indirect re-transfer of all or any part of the income or assets to the transferor.

Section 98(b)(ii) - Power retained by transferor: A transfer is also deemed revocable if it gives the transferor a right to re-assume power, directly or indirectly, over all or any part of the income or assets.

The two alternative tests in Section 98(b) are joined by or: satisfying either one can make the transfer revocable for these provisions.

How are these definitions applied?

1. Transfer includes arrangements and trusts

For these sections, the law looks beyond the label given to a transaction. A settlement, trust deed, covenant, contract or other arrangement may fall within the expression transfer. Whether the income is taxable to the transferor depends on the substantive conditions in the connected provisions.

2. A right to receive assets or income back matters

A clause that permits income or property to return to the transferor, directly or through an intermediary, may satisfy Section 98(b)(i). The clause need not provide for the return of the entire property or all income.

3. Retaining control may also make the transfer revocable

Even without an express return clause, a right allowing the transferor to regain power over income or assets may fall within Section 98(b)(ii). The terms and practical legal effect of the arrangement should be examined.

Important distinction: A revocable transfer is defined in Section 98, but the tax consequence is generally determined under Section 97. Section 97(2) contains a limited exception for specified transfers that cannot be revoked during the relevant lifetime and from which the transferor derives no direct or indirect benefit. Section 97(3) addresses taxability when the power to revoke arises.

Practical illustrations

Example 1: Trust with a right to reclaim property

A person places investment assets in a trust but reserves the right to demand their return. That reserved right may make the transfer revocable under Section 98(b). Income arising from the assets must then be tested under Section 97.

Example 2: Income may be redirected back

An agreement provides that a portion of the income assigned to another person can later be redirected to the original owner. This may satisfy Section 98(b)(i), even if the return is indirect or concerns only part of the income.

Example 3: Income transferred without the asset

A property owner directs rental income to another person but retains ownership of the property. Section 96 may require that income to be included in the owner's total income whether or not the income assignment is revocable.

These examples are simplified illustrations. Actual tax treatment depends on the instrument, the rights retained, the relevant tax year and all applicable statutory conditions.

Section 96 - Transfer of income without transfer of assets: Income may remain taxable to the transferor where the underlying asset is not transferred.
Section 97 - Chargeability of income in transfer of assets: Governs income from revocable transfers and relevant exceptions.
Income-tax Act, 2025 index: Browse the Act's provisions.

Section 98 broadly corresponds to Section 63 of the Income-tax Act, 1961. For a historical tax period, the law applicable to that period must be considered rather than automatically applying the 2025 Act.

Frequently asked questions

Does every trust count as a transfer?

A trust is expressly included in the definition of transfer for Sections 96 to 98. That does not mean every trust is automatically revocable or that all its income is necessarily taxable to the settlor.

Can a transfer be revocable without a formal cancellation clause?

Yes. A direct or indirect right to re-assume power over income or assets can bring an arrangement within Section 98(b)(ii).

Is the entire property required to return to the transferor?

No. Section 98(b) expressly covers the whole or any part of the income or assets.

Does Section 98 itself impose tax?

Section 98 supplies definitions. The operative inclusion and chargeability rules are found principally in Sections 96 and 97.

Official statutory reference

The statutory text may be checked in the Gazette of India publication of the Income-tax Act, 2025. For current consolidated legislation, consult the Income Tax Department's updated Act.

Last reviewed: 10 November 2026. This article is general legal information and is not a substitute for advice on a particular instrument or transaction.