Section 63 of Income Tax Act – “Transfer” and “Revocable Transfer” Defined

One of the most debated topics in income tax law is transfer of income or assets. People often think that if they move property, money, or investments to someone else, they can escape taxation on that income. However, the Income Tax Department isn’t so easy to trick.

That’s exactly why Section 63 of the Income Tax Act, 1961 was introduced. It defines “transfer” and “revocable transfer”, ensuring that taxpayers can’t reduce or avoid tax liability through clever arrangements or temporary asset transfers.

It connects directly with Section 60, Section 61, & Section 62, which deal with the taxation of income from transferred assets. Together, they form the foundation of clubbing provisions in the Act.

Purpose of Section 63

The main purpose of Section 63 is to prevent tax evasion. In simple words, you cannot transfer your income or property to someone else — like your spouse or a trust — and still keep the power to take it back or control it indirectly, while claiming you no longer own it.

If you retain the right to revoke the transfer, then under law, it’s as if you never really transferred it in the first place. That’s where the term revocable transfer comes from.

This ensures fairness: income is taxed where real ownership & control exist, not where papers claim it has moved.

Text of Section 63

The section reads:

“For the purposes of sections 60, 61 & 62, and of this section—
(a) ‘transfer’ includes any settlement, trust, covenant, agreement or arrangement;"
(b) ‘revocable transfer’ means any transfer containing any provision for the re-transfer, directly or indirectly, of the whole or any part of the income or assets to the transferor, or giving the transferor a right to reassume power directly or indirectly over the income or asset.”

In simple words:

• Even if you don’t call it a transfer but it acts like one (through trust, agreement, or settlement), it’s still considered a transfer.
• If the transfer allows you to get the property or income back later, it’s revocable, and hence taxable in your hands.

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

Understanding “Transfer” under Section 63

A transfer, as defined here, is broader than just selling or gifting. It includes:

• Setting up a trust & transferring income-generating assets to it.
• Creating a settlement for someone’s benefit.
• Entering into an agreement or arrangement where another person temporarily enjoys the benefits of an asset.

So even informal arrangements — where no physical document exists but control moves — can be treated as transfers under the law.

What Is a “Revocable Transfer”?

A revocable transfer means the transferor still has the power to get back what they gave away. It could be direct or indirect, immediate or conditional.

For example:

• If you gift your property to a friend but keep the right to take it back in the future, that’s a revocable transfer.
• If you set up a trust but reserve the power to dissolve it & reclaim the assets, that’s also a revocable transfer.

In both cases, the income from the property will be taxed in your name, not the other person’s.

Section 63 in Context with Sections 60 to 62

This table shows how Section 63 provides the legal backbone for deciding when a transfer is real or merely temporary.

Practical Example – Simple Case Study

Let’s say Mr. Raj transfers ₹10 lakh to a trust for his niece. The trust deed says Raj can revoke the trust at any time.

Now, the trust invests that ₹10 lakh and earns ₹1 lakh interest in a year."

Who is taxed?
👉 Mr. Raj himself.

Because under Section 63, the transfer is revocable — he can get the money back whenever he wants. Therefore, the ₹1 lakh is treated as his income.

Another Example – Irrevocable Transfer

Now imagine Raj transfers the same ₹10 lakh but makes it irrevocable — he gives up all rights to reclaim the funds.

In that case, the ₹1 lakh interest will be taxed in the hands of the trust or beneficiary, not Raj.

That’s the key difference Section 63 clarifies between a revocable & irrevocable transfer.

Also Read: Hidden Money? Section 69B of the Income Tax Act Can Expose More Than You Think

Key Features of Section 63

✅ Applies to both income and assets.
✅ Covers direct & indirect transfers.
✅ Considers written and oral arrangements.
✅ Includes conditional settlements & trusts.
✅ Ensures income from revocable transfers remains taxable for the original owner.

The language is wide by design — to catch all forms of hidden or indirect control.

Why Section 63 Is Important for Taxpayers

Many people, knowingly or unknowingly, create arrangements where they transfer income but retain control. For example:

• Parents transferring property to their children but reserving rights of use.
• Business owners creating family trusts but controlling investment decisions.

Section 63 prevents such cases from becoming tax shelters. It ensures income follows ownership in substance, not just in paperwork.

Judicial Interpretations of Section 63

Indian courts have consistently supported the spirit of Section 63.

• In CIT vs. P.K. Kochammu Amma (1980), the Supreme Court held that even indirect control could make a transfer revocable.
• In Keshavlal Lallubhai Patel vs. CIT (1963), it was ruled that the term “transfer” includes all kinds of settlements or agreements that lead to the shifting of income.

These rulings emphasize that the real intention behind the transfer — not just the words on paper — determines its tax treatment.

Section 63 and Trusts

Trusts often fall under the scanner of Section 63. If a settlor creates a trust but retains powers to revoke or reclaim assets, the income of that trust is taxed back to the settlor.

Only when a trust is irrevocable — where the settlor has fully surrendered control — does the tax liability shift to the trustee or beneficiaries.

Common Misconceptions

❌ “I gave the asset to my relative, so I’m not liable.”
→ Wrong. If you can get it back, it’s revocable.

❌ “It’s just an oral promise, not a written transfer.”
→ Doesn’t matter. Even oral or implied arrangements count.

❌ “I’m not using the asset anymore.”
→ If you still have control or a reversion clause, the income is taxable to you.

Practical Implications for Estate Planning

High-net-worth individuals (HNIs) & business families often use family settlements & trusts for estate planning. But if these documents aren’t structured correctly, the transfer could be treated as revocable, leading to unwanted taxation.

Hence, proper drafting — ensuring no revocation clause — is critical for genuine wealth transfer and tax efficiency.

Link Between Section 63 and Clubbing of Income

Section 63 supports Sections 64 & 65, which deal with the clubbing of income.
For instance, when a husband transfers assets to his wife or minor child but retains indirect control, that income is clubbed back to him under Section 64 — supported by the definitions in Section 63.

Key Takeaways

✅ “Transfer” under Section 63 covers all possible arrangements — even informal ones.
✅ A revocable transfer gives you power to reclaim assets or income.
✅ Income from such transfers is taxed to the transferor, not the recipient.
✅ Proper legal drafting is vital to make a transfer irrevocable.
✅ Section 63 prevents misuse of temporary or circular transfers for tax avoidance.

Also Read: Do You Qualify as a Resident? Discover How a Simple Clause Can Decide Your Tax Fate

Real-Life Example – Revocable Transfer in Family

Consider a businessman who transfers his company shares to his spouse but keeps a clause allowing him to buy them back anytime. When those shares earn dividends, the tax department can still tax the husband — because he controls the outcome.

That’s Section 63 in action — it ensures genuine transfers only when real ownership changes.

Why You Should Care

Even small family gifts or property transfers can trigger Section 63 implications. If the paperwork or intention suggests the transfer can be reversed, expect the income to be taxed under your name.

Therefore, it’s not just a section for large corporates — it affects everyday taxpayers too.

Summary Table – Section 63 Overview

Conclusion

In essence, Section 63 of the Income Tax Act gives teeth to India’s anti-avoidance framework by defining what truly counts as a transfer. By clarifying the meaning of “transfer” & “revocable transfer”, it ensures that income is taxed where real ownership and control lie — not where it’s merely shown on paper. If you’ve transferred any property, income, or investments — or plan to create a trust or settlement — it’s crucial to review it carefully for compliance with Section 63.

For expert help in structuring your transfers, trusts, or family settlements the right way, visit Callmyca.com — India’s most trusted platform for tax & compliance solutions. Our professionals ensure your tax planning stays legal, strategic, and stress-free.