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

Under section 221 of the Income-tax Act, 2025, an investor was taxed in tax year 1 on ₹2,00,000 that had accrued but was not paid by the securitisation trust. The trust paid this amount to the investor in tax year 2. What is the treatment in tax year 2?

The amount is excluded from the investor's total income in tax year 2. Section 221(5) says income already included in total income in an earlier year because it accrued is not included again when the securitisation trust actually pays it. The ₹2,00,000 was already taxed in tax year 1.

  1. ATaxed again as income of tax year 2
  2. BTaxed in tax year 2 at half the amount
  3. CExcluded from the investor's total income of tax year 2Correct
  4. DTreated as capital gains in tax year 2

Explanation

Section 221(5) provides that income already included in the investor's total income for a year because it accrued or arose in that year is not included again in the year in which it is actually paid to the investor. The ₹2,00,000 was taxed in tax year 1, so it is excluded in tax year 2. Taxing it again would be double taxation.

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