Skip to content

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

An investor holds security receipts issued by a securitisation trust. For the tax year, the trust earns income of ₹10,00,000 and pays nothing to anyone. The investor is entitled to 20% of the income. Under section 221 of the Income-tax Act, 2025, which statement is correct?

The investor is taxed on ₹2,00,000. The unpaid income is deemed credited to the investor on the last day of the tax year in the proportion of entitlement, 20% of ₹10,00,000, and keeps the same nature as in the trust. When it is later paid, it is not taxed again.

  1. A₹2,00,000 is deemed credited to the investor on the last day of the tax year and is taxed in the investor's hands in the same nature as earned by the trustCorrect
  2. BNothing is taxed until the trust actually pays the investor
  3. C₹10,00,000 is taxed in the investor's hands because the trust is a pass-through
  4. D₹2,00,000 is taxed in the trust and the investor is taxed only on receipt

Explanation

Under section 221(3), income not paid or credited is deemed credited to the investor on the last day of the tax year in the proportion of entitlement: 20% of ₹10,00,000 = ₹2,00,000. Under section 221(2) it keeps the same nature. Section 221(5) then excludes it when it is actually paid later, which avoids double taxation. Taxing the full ₹10,00,000 ignores the investor's proportion.

Did you get it right without looking?

One question tells you little. A timed set on Assessment of Trusts shows your real accuracy, how long you take and where you lose marks.

Practise Assessment of TrustsFree diagnostic mock

More Assessment of Trusts questions