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CMA Final · Direct Tax Laws and International Taxation · Assessment of Trusts

A securitisation trust earned ₹ 8,00,000 in tax year 1, of which investor Rohan (entitled to 25%) was paid nothing in that year. In tax year 2 the trust paid Rohan the ₹ 2,00,000 relating to year 1, and he also became entitled to ₹ 1,50,000 of year 2 income, which was paid in full. Under section 221 of the Income-tax Act, 2025, what are Rohan's inclusions in total income for year 1 and year 2 respectively?

Rohan includes ₹ 2,00,000 in year 1 and ₹ 1,50,000 in year 2. Undistributed income is deemed credited on the last day of year 1, and section 221(5) prevents it from being taxed again when it is actually paid in year 2.

  1. A₹ 0 and ₹ 3,50,000
  2. B₹ 2,00,000 and ₹ 1,50,000Correct
  3. C₹ 2,00,000 and ₹ 3,50,000
  4. D₹ 1,50,000 and ₹ 2,00,000

Explanation

Under section 221(3), Rohan's 25% share of year 1 income, ₹ 2,00,000, is deemed credited on the last day of year 1 and taxed then. Section 221(5) says income already included on accrual is not included again when actually paid, so the ₹ 2,00,000 received in year 2 is excluded. Year 2 includes only the ₹ 1,50,000 of that year. Taxing on receipt, or taxing ₹ 3,50,000 in year 2, would double count or defer.

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