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

Under section 221 of the Income-tax Act, 2025, who is an 'investor' in a securitisation trust for the purposes of pass-through taxation?

An investor is any person holding a securitised debt instrument, securities or a security receipt issued by the securitisation trust. Holding such instruments, not being a settlor, originator or trustee, is the test, and such holders are taxed as if they had made the investments directly.

  1. AOnly a person who has contributed to the trust's initial corpus as settlor
  2. BA person who holds any securitised debt instrument, securities or security receipt issued by the securitisation trustCorrect
  3. COnly a bank or financial institution that originated the underlying loans
  4. DThe trustee managing the securitisation trust

Explanation

Section 221(6)(a) defines an investor as a person who is the holder of any securitised debt instrument or securities or security receipt issued by the securitisation trust. Settlor status, being the originator or acting as trustee is not the test, so those options are incorrect.

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