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

Nirmaan Securitisation Trust earned ₹12,00,000 of interest income during the tax year and paid or credited nothing to its investor, Ms. Rekha, who is entitled to 25% of the income. Under section 221 of the Income-tax Act, 2025, how is this treated, and when is it deemed credited?

₹3,00,000 is deemed credited to Ms. Rekha on the last day of the tax year, being her 25% share of ₹12,00,000. It keeps the same nature, interest, as in the trust's hands. When actually paid later, it is not included again in her total income.

  1. ANothing is taxable for Ms. Rekha until the trust actually pays her
  2. B₹3,00,000 is deemed credited to her on the last day of the tax year, and keeps the nature of interestCorrect
  3. C₹12,00,000 is taxable in her hands on the last day of the tax year
  4. D₹3,00,000 is taxable as capital gains when paid, and not before

Explanation

Section 221(3) deems undistributed income credited to the investor on the last day of the tax year in her entitled proportion: 25% of ₹12,00,000 = ₹3,00,000. Under 221(2) it retains the same nature, here interest. Under 221(5) it is not taxed again when actually paid.

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