Section 221
Section 221: tax on income from securitisation trusts
Section 221 sets out a "pass-through" taxation model for securitisation trusts: income earned by the trust from its underlying investments is treated, for tax purposes, as if it had accrued directly to the investor who holds securitised debt instruments, securities or security receipts issued by the trust.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
How the pass-through works
Where an investor receives income, or income accrues or arises to him, out of investments made in a securitisation trust, that income is chargeable to tax in the same manner as if the investor had made the investment directly - not as trust income.
Income paid or credited by the trust retains the same nature and proportion in the investor's hands as it had when it accrued to, or was received by, the trust during the tax year.
If the trust's income for a tax year is not actually paid or credited to the investor, it is deemed to have been credited to the investor's account on the last day of that tax year, in the proportion the investor would have been entitled to receive it.
Income already included in an investor's total income on an accrual basis in one tax year is not taxed again in the year it is actually paid out.
Reporting obligation
The person responsible for crediting or paying the income on behalf of the securitisation trust, and the trust itself, must furnish a statement - within the prescribed period, in the prescribed form and manner - to both the person liable to tax on that income and the prescribed income-tax authority, giving details of the nature of the income paid or credited during the tax year.
Key definitions
Section 221(6) defines the terms used in the section:
- "Investor" - a person holding a securitised debt instrument, securities or a security receipt issued by the securitisation trust
- "Securities" - debt securities issued by a Special Purpose Vehicle as referred to in the Reserve Bank of India's securitisation guidelines
- "Securitised debt instrument" and "security receipt" - as defined under the relevant SEBI regulations and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
- "Securitisation trust" - a trust that is a special purpose distinct entity or Special Purpose Vehicle regulated under SEBI's Public Offer and Listing of Securitised Debt Instruments Regulations, 2008, or the RBI's securitisation guidelines, or a trust set up by a securitisation/reconstruction company under the 2002 Act and fulfilling prescribed conditions
Frequently asked questions
Is the securitisation trust itself taxed on its income?
Section 221 taxes the income in the hands of the investor, as if the investor had made the underlying investments directly, rather than taxing the trust separately on that income.
What if the trust doesn't actually distribute the income during the year?
Undistributed income is deemed credited to the investor's account on the last day of the tax year, in the proportion the investor would have received had it been paid out.
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Talk to our tax team about securitisation trust incomeLast updated 9 September 2026