Chargeability -Transfer Of Assets. Old Sections 61 & 62 Are Now Sections 97 & 98

Families like to use trusts and settlements to plan their taxes. The law has always been clear about what happens when you give someone an asset. If you can take it back it is not really a gift. This rule has not changed with the law. The section numbers have changed that is all.

Old law: Section 61 (the rule) + Section 62 (the exception), Income Tax Act, 1961

New law: Section 97 (the rule) + Section 98 (definitions and exception), Income Tax Act, 2025 — effective 1 April 2026, applicable from AY 2026-27

What the Sections Say

Section 61 which is now Section 97 says that if you give someone an asset but you can take it back, you still have to pay tax on the income from that asset.

Section 62 which is now part of Section 98 says that this rule does not apply if the gift is made through a trust that cannot be changed and you do not benefit from the income.

There is a catch. If the trust can be changed after a time the income will be taxed in your hands from that point on.

* Note the section title also has been changed, old Section 61 was titled "Revocable transfer of assets"; new Section 97 is titled "Chargeability of income in transfer of assets." The renaming reflects a drafting shift across the new Act: section titles increasingly describe the tax consequence (chargeability) rather than just the triggering mechanism (revocability).

What Actually Changed

Substance-wise, nothing. This is renumbering plus consolidation:

• Section 61 → Section 97: the revocable-transfer rule is carried forward unchanged
• Section 62 + Section 63 → Section 98: the new Act merges the old exception (Section 62) and the old definitions (Section 63) into one section, rather than keeping them as two separate ones
• Section title renamed: "Revocable transfer of assets" → "Chargeability of income in transfer of assets" — cosmetic for practitioners, but worth using the correct new title in any client-facing document or citation.
• No change to the two-condition exception test, the "no benefit to transferor" requirement, or the forward-looking treatment when revocability later arises

If you've built trust-deed review checklists around Sections 61–63, the logic transfers directly — you're just citing 97 and 98 instead of three separate old sections.

Worked Example

Old position (Sections 61 & 62, applicable up to AY 2025-26):

Mr. Deshmukh sets up a trust in FY 2020-21, transferring a portfolio of listed shares worth ?40,00,000 for the benefit of his adult daughter. The trust deed states the trust is irrevocable for her lifetime, and Mr. Deshmukh receives no income or benefit from the trust at any point.

Result: Because the trust is genuinely irrevocable during the beneficiary's lifetime and Mr. Deshmukh derives no benefit, Section 62 exempts this from Section 61. The dividend and any capital gains income from the trust portfolio is taxed in the trust's/daughter's hands, not Mr. Deshmukh's.

Contrast this with a second trust Mr. Deshmukh sets up the same year, where the deed gives him the right to revoke the arrangement and reclaim the shares after 5 years. Here, Section 61 applies immediately — all income from that second trust is taxed in Mr. Deshmukh's hands every year, because the revocability itself (even if unexercised) is enough to trigger the section.

New position (Sections 97 & 98, applicable from AY 2026-27):

Same two trusts, same terms, set up in FY 2026-27 instead. Outcome is identical: the genuinely irrevocable trust's income is taxed in the daughter's hands under the Section 98 exception; the revocable trust's income is taxed in Mr. Deshmukh's hands under Section 97. Only the section numbers cited in the trust's tax computation change — from 61/62 to 97/98.

Why This Matters for Filing

• Trust deed review checklists need re-tagging, not rebuilding.
  The two-part exception test (irrevocable during beneficiary's lifetime + no benefit to transferor) is exactly what you should still be checking — just cite Section 98 instead of Section 62.
• Watch for revocability clauses that "expire." Trusts drafted as irrevocable for a fixed term (e.g., "irrevocable for 10 years") aren't automatically safe forever — once the power to revoke arises, income clubs back to the settlor under Section 97 from that point forward. This is a recurring review item for older family trusts as their fixed terms approach expiry.
• This section pairs directly with Section 96 (old Section 60), covered in our earlier post — 96/97/98 together form the opening block of the new Act's consolidated clubbing chapter (Sections 96–100), replacing the old scattered Sections 60–65.
• Schedule SPI-equivalent disclosure in the ITR continues to apply wherever clubbed trust income is being reported, regardless of which section number is cited.
   

Bottom Line

Sections 61 and 62 haven't disappeared — 61 became 97, and 62 was absorbed into 98 along with the old definitions section. The test remains exactly what it always was: can the settlor take the asset back, and does the settlor benefit from it? Answer yes to either, and the income is clubbed in the transferor's hands — old Act or new.