Section 62 — When Income From Transferred Assets Is Not Clubbed Back To You

Indian tax law has a very clear philosophy:

“You cannot escape tax simply by transferring assets in someone else’s name.”

That’s why the Income Tax Act contains specific anti-avoidance rules under Section 60 to 64—collectively known as the clubbing provisions. These allow the tax department to club income back to the assessee when assets or income are transferred merely as a formality or without genuine relinquishment of control.

However, the law also acknowledges that not every transfer is a tax-avoidance tactic.

Sometimes transfers are genuine—
✔ for estate planning,
✔ asset protection,
✔ setting up a trust, or
✔ gifting for real, not just on paper.

For such real transfers, Section 62 steps in & provides relief.

What Does Section 62 Say?

Section 62 of the Income Tax Act outlines exceptions to the rule of clubbing of income. Normally, under Section 61:

“Income from revocable transfer of assets is chargeable to tax in the hands of the transferor.”

But Section 62 offers an exception.

👉 If the transfer is irrevocable & is made for a specified period,
👉 and the transferor cannot reassume power during that time,
👉 then the income arising during that period will not be clubbed back.

In simple words:

If you transfer an asset truly and irrevocably for a certain minimum period, the income from that asset is not taxed in your hands during that period.

Also Read: The Hidden Rule Behind Tracking High-Value Transactions

Conditions to Claim Exemption Under Section 62

A transfer must satisfy all three:

Only then, income will be taxed in the hands of the transferee, not you.

Example — When Clubbing Applies vs. When Section 62 Saves You

❌ Case 1: Transfer is revocable → Income gets clubbed

Rohan transfers his commercial property to his brother with a clause:

“I can take it back anytime.”

→ This is a revocable transfer,
→ Income from rent will be taxed in Rohan’s hands.

✅ Case 2: Transfer is irrevocable for a period → Income NOT clubbed

Priya transfers a property into a trust for 7 years, irrevocably.

→ Section 62 applies
→ Rental income is taxed in the trust’s hands, not Priya’s.

How Section 62 Interacts With “Maintenance of Books of Accounts”

Although Section 62 itself doesn’t force the transferee to maintain books, in practice tax officers often ask for:

• documentation proving irrevocability,
• trust deed or transfer contracts,
• proof of asset transfer,"
• financial statements showing the income flow.

Thus, maintaining proper books of accounts becomes essential to defend the exemption.

In disputes, lack of documentation results in clubbing under Section 61.

Why Irrevocability Matters

Because revocable transfers = tax avoidance risk.

Example:
You "transfer" your shares to someone, they earn dividend, no tax in your hands, later you take shares back.

Section 61 blocks this loophole.
Section 62 allows genuine transfers to enjoy relief.

Also Read: Unexplained Credits, Legal Pressure & Case Law Insights

Common Mistakes Taxpayers Make (And How to Avoid Them)

Tax Planning Insight — Section 62 Used Properly = Big Advantage

If a high-income individual transfers income-generating assets irrevocably for a few years, income shifts to a lower-tax slab individual/entity.

This strategy is often seen in:

• Family-owned businesses
• Private trusts
• Succession & estate planning

But misuse is risky.

The Transfer Deed must clearly say:

“Transfer irrevocable for ___ years. Transferor has no direct or indirect benefit.”

Difference Between Section 61 vs. Section 62

Practical Documentation Checklist to Claim Section 62

✅ Registered Transfer Deed / Trust Deed"
✅ Mention period of irrevocability
✅ No clause allowing return of asset before said period
✅ Books of accounts maintained (to support income flow)

When Section 62 Does NOT Apply

• If the transfer is revocable in disguise
• If there is an agreement outside records to return assets
• If income benefit is indirectly enjoyed

Tax officers look beyond the paperwork—they evaluate intent control.

Also Read: A Deep Dive into Unexplained Investments

Conclusion — Section 62 Helps Only the Genuine, Not the Clever

Section 62 of the Income Tax Act is not a loophole. It’s a recognition that genuine asset transfers deserve tax neutrality.

If the transfer:

• is irrevocable,
• has a specified duration, and
• removes all economic control from the transferor,

then the income during that period is not clubbed back.

It protects authentic asset planning.

But if you try to “appear” to transfer the asset while still enjoying its benefits, then Section 61 overrides & clubbing applies.

If you’re planning a trust, family arrangement or asset transfer & want to correctly draft the structure so income is not clubbed back:

👉 Talk to our CA team at CallMyCA.com
We specialize in:

• HNI tax structuring,
• trust formation,
• asset transfer planning, and
• documentation required to claim Section 62 benefit.

Your asset transfer shouldn’t become your tax problem. Let our CA team structure it the right way.