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

Mr. Arun holds security receipts of a securitisation trust. In tax year 1 the trust earned ₹4,00,000 attributable to him and paid nothing; this was deemed credited to him under section 221. In tax year 2 the trust actually paid him ₹4,00,000 in cash, and its own tax-year-2 earnings attributable to him were ₹1,50,000, which it paid in full. What amount is includible in Mr. Arun's total income for tax year 2 on account of the trust, as per the Income-tax Act, 2025?

Only ₹1,50,000 is includible for tax year 2. The ₹4,00,000 paid in that year was already taxed in tax year 1 when it was deemed credited, and section 221(5) prevents its inclusion again on actual payment. The current-year earnings of ₹1,50,000 are taxable.

  1. A₹5,50,000
  2. B₹4,00,000
  3. C₹1,50,000Correct
  4. D₹9,50,000

Explanation

The ₹4,00,000 was already included in tax year 1 on accrual. Section 221(5) provides that income so included is not included again in the year it is actually paid. Only the year-2 earnings of ₹1,50,000 are includible. ₹5,50,000 is wrong because it double counts the earlier amount.

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