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CA Intermediate · Taxation · Income of Other Persons included in Total Income of Assessee

Mr Iyer transferred bonds worth Rs 10,00,000 to a private trust for the benefit of his nephew. The trust deed lets Mr Iyer revoke the trust and take back the bonds at any time. During tax year 2026-27 the trust earned interest of Rs 1,20,000 from the bonds, of which Rs 40,000 was paid to the nephew. The trust did not revoke or terminate during the year. What amount is included in Mr Iyer's total income on account of this transfer?

Rs 1,20,000 is clubbed in Mr Iyer's income. Where a transfer is revocable, all income from the transferred asset is taxed in the transferor's hands while the power to revoke remains. It makes no difference how much was actually paid to the beneficiary or held back by the trust.

  1. ANil
  2. BRs 40,000
  3. CRs 80,000
  4. DRs 1,20,000Correct

Explanation

Income from assets transferred under a revocable transfer is clubbed in the hands of the transferor for as long as the power to revoke exists. It does not matter whether the income is paid to the beneficiary or retained by the trust. The entire interest of Rs 1,20,000 is therefore taxed in Mr Iyer's hands. Rs 40,000 wrongly counts only the amount paid to the nephew.

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