Chapter XIII - Determination of Tax in Special Cases
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.
On this page
Need advice on Section 221?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Irrespective of anything contained in this Act, where a person being an investor of a securitisation trust, receives any income or any income accrues or arises to him, out of investments made in the securitisation trust, such income shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by, such person, had the investments by the securitisation trust been made directly by him.
(2) The income paid or credited by the securitisation trust shall be deemed to be of the same nature and in the same proportion in the hands of the person referred to in sub-section (1), as if it had been received by, or had accrued or arisen to, the securitisation trust during the tax year.
(3) The income accruing or arising to, or received by, the securitisation trust during a tax year, if not paid or credited to the person referred to in sub-section (1), shall be deemed to have been credited to the account of the said person––
(a) on the last day of the tax year; and
(b) in the same proportion in which such person would have been entitled to receive the income had it been paid in the tax year.
(4) The person responsible for crediting or making payment of the income on behalf of securitisation trust, and the securitisation trust, shall furnish, within such period, as may be prescribed, to the person who is liable to tax in respect of such income and to the prescribed income-tax authority, a statement in such form and verified in such manner, giving details of the nature of the income paid or credited during the tax year and such other relevant details, as may be prescribed.
(5) Any income which has been included in the total income of the person referred to in sub-section (1) in a tax year, on account of it having accrued or arisen in the said tax year, shall not be included in the total income of such person in the tax year in which such income is actually paid to him by the securitisation trust.
(6) For the purposes of this section,—
(a) “investor” means a person who is holder of any securitised debt instrument or securities or security receipt issued by the securitisation trust;
(b) “securities” means debt securities issued by a Special Purpose Vehicle as referred to in the guidelines on securitisation of standard assets issued by the Reserve Bank of India;
(c) “securitised debt instrument” shall have the same meaning as assigned to it in regulation 2(1)(s) of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 and the Securities Contracts (Regulation) Act, 1956;
(d) “securitisation trust” means a trust, being a—
(i) “special purpose distinct entity” as defined in regulation 2(1)(u) of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 and the Securities Contracts (Regulation) Act, 1956 and regulated under the said regulations; or
(ii) “Special Purpose Vehicle” as defined in, and regulated by, the guidelines on securitisation of standard assets issued by the Reserve Bank of India; or
(iii) trust set-up by a securitisation company or a reconstruction company formed, for the purposes of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, or in pursuance of any guidelines or directions issued for the said purposes by the Reserve Bank of India, which fulfils such conditions, as may be prescribed;
(e) “security receipt” shall have the same meaning as assigned to it in section 2(1)(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
Introduction
A securitisation trust can receive income from assets it holds, but this section generally taxes that income to the investor as though the investor had invested directly.
The character and proportion of income follow through to the investor, and income not actually paid can still be deemed credited by the last day of the tax year.
Key takeaways
Securitisation investor is taxed
Income from a securitisation-trust investment is taxed to the investor as though the investor made the investment directly.
Income character follows through
The section preserves the nature and proportion of the income passing to the investor under its distribution rule.
Statements are required
The paying person and the trust must furnish the prescribed information to the investor and tax authority.
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
Step-by-step flow for applying Section 221
- 1
Is the person an investor in a securitisation trust?
Under Section 221(6), an investor holds a securitised debt instrument, securities or a security receipt issued by a securitisation trust. The trust must be one of the entities listed in Section 221(6)(d).
- No: Section 221 does not apply.
- Yes: Go to the next step.
- 2
Tax the income as if the investor had made the trust's investments directly
Section 221(1). The income is charged in the investor's hands in the same manner as direct investment income.
- 3
Keep the same nature and proportion
Under Section 221(2), income paid or credited by the trust has the same nature and proportion in the investor's hands as in the trust's hands for the tax year.
- 4
Was all the trust's income for the year paid or credited to the investor?
- No: Under Section 221(3), the unpaid part is deemed credited to the investor on the last day of the tax year, in the proportion of the investor's entitlement.
- Yes: Go to the next step.
- 5
Avoid double inclusion and reconcile the statement
Under Section 221(5), income already included on accrual is not included again when actually paid. The trust and the payer must give a statement under Section 221(4); its form, time and other details are prescribed by rules.
Practical checklist
Do
- Reconcile the securitisation trust statement with income actually paid and income deemed credited.
- Classify each income component according to the nature it had in the trust’s hands.
Avoid
- Assume an unpaid distribution is outside the year’s taxable income without checking the deemed-credit rule.
Illustrative example
Worked example: part paid, part deemed credited
Hypothetical facts (illustration only, not a real taxpayer): Ms. Menon holds 10% of the security receipts issued by a securitisation trust. During the tax year the trust earns ₹1,00,00,000: ₹75,00,000 of interest-type income and ₹25,00,000 of capital gains. It pays her ₹6,00,000 during the year and the balance of her share early in the next year. All figures are assumed.
Her share
10% × ₹1,00,00,000 = ₹10,00,000, of which 75% (₹7,50,000) is interest-type income and 25% (₹2,50,000) is capital gains.
Amount paid
The ₹6,00,000 paid keeps the trust's mix under Section 221(2): ₹4,50,000 interest-type income and ₹1,50,000 capital gains.
Amount not paid
The balance of ₹10,00,000 − ₹6,00,000 = ₹4,00,000 is deemed credited on the last day of the tax year under Section 221(3): ₹3,00,000 interest-type income and ₹1,00,000 capital gains.
Next year
When the ₹4,00,000 is actually paid next year, it is not included again (Section 221(5)).
Outcome
- Ms. Menon includes ₹10,00,000 for the tax year: ₹7,50,000 interest-type income and ₹2,50,000 capital gains.
- How each part is then taxed depends on the provisions that would apply had she invested directly.
Glossary
- Investor
- A holder of a securitised debt instrument, securities or a security receipt issued by the securitisation trust (Section 221(6)(a)).
- Securitisation trust
- A trust that is one of the entities listed in Section 221(6)(d), such as a special purpose distinct entity under the SEBI securitised debt regulations or a Special Purpose Vehicle under the RBI guidelines.
- Security receipt
- Has the meaning given in section 2(1)(zg) of the SARFAESI Act, 2002 (Section 221(6)(e)).
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.
Need help applying this provision to your situation?
Talk to our tax team about securitisation trust incomeLast updated 9 October 2026