Income Tax Law | Securitisation Trusts

Section 115TCA of the Income-tax Act: Tax on Income from Securitisation Trusts

Section 115TCA of the Income-tax Act, 1961 establishes a pass-through approach for income earned through qualifying securitisation trusts. Investors are taxed broadly as if they had directly invested in the underlying assets, subject to the statutory conditions. This guide explains the five subsections, important definitions, reporting duties and withholding tax.

Legislative transition: Section 115TCA is a provision of the Income-tax Act, 1961, relevant to periods governed by that Act. The Income-tax Act, 2025 applies from 1 April 2026, with corresponding provisions including section 221. References to the 1961 Act below explain the historical statutory section and its operation for applicable years; consult the new Act for tax year 2026-27 onward.

What does Section 115TCA provide?

The provision shifts taxation of relevant securitisation trust income to investors, while preserving the underlying character and proportion of the income. Its operation differs from the former additional tax on distributed income under section 115TA, which does not apply to distributions on or after 1 June 2016.

Explanation of Section 115TCA, subsection by subsection

Subsection (1): Income taxable in investors' hands

Income accruing, arising or received by an investor from investment in a securitisation trust is taxable in the same manner as income from a direct investment by that investor in the underlying assets. The actual classification and applicable tax treatment depend on the nature of the income and investor.

Subsection (2): Nature and proportion retained

Income paid or credited by the trust retains its nature and proportion in the hands of the investor, as it had in the trust. Trust statements should distinguish relevant components rather than treating every receipt automatically as interest.

Subsection (3): Undistributed income deemed credited

If income accruing, arising or received by the trust in a previous year is not paid or credited to an investor, it is deemed credited to that investor on the last day of the previous year in the proportion to which the investor would have been entitled.

Subsection (4): Reporting obligation

The trust and the person responsible for payment or credit must furnish prescribed statements to the taxable investor and the prescribed income-tax authority. Under the earlier rules, reporting involved Form 64E and Form 64F. The Income-tax Department has published guidance for Form 72 under section 221 of the 2025 Act and the Income-tax Rules, 2026.

Subsection (5): No double taxation when paid later

Income already included in an investor's total income in an earlier previous year on an accrual basis is not included again merely because it is subsequently paid by the trust.

Definitions in the Explanation

Investor: A holder of a securitised debt instrument, securities or a security receipt issued by the securitisation trust.
Securities: Debt securities issued by a special purpose vehicle referred to in the Reserve Bank of India's guidelines on securitisation of standard assets.
Securitised debt instrument: Has the meaning assigned under regulation 2(1)(s) of the SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008.
Securitisation trust: Includes specified SEBI-regulated special purpose distinct entities, RBI-regulated special purpose vehicles, and qualifying trusts set up by securitisation or reconstruction companies under the SARFAESI framework, subject to prescribed conditions.
Security receipt: Has the meaning in section 2(1)(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Tax deduction at source and compliance

For the period governed by the 1961 Act, section 194LBC governs tax deduction on specified income paid or credited to investors. From 1 April 2025 the TDS rate for resident investors was reduced to 10% (previously 25% for individuals/HUFs and 30% for others). For non-resident investors, withholding is generally at the applicable rates in force, subject to the relevant legal requirements. TDS is not necessarily the investor's final income-tax liability.

Under the 2025 Act, consult the corresponding withholding provisions and reporting requirements for the relevant tax year. Trusts and investors should reconcile annual statements, amounts deemed credited, tax deducted and any subsequent distributions.

Illustrative example

Suppose a qualifying trust earns Rs. 1,00,000 attributable to an investor during a year but pays only Rs. 70,000. Subject to the statutory computation and character of income, the entire Rs. 1,00,000 may be reportable in that year under the accrual and deemed-credit rules. When the remaining Rs. 30,000 is subsequently paid, the same income is not taxed a second time solely because it was distributed later.

Official statutory references

This is a general statutory explanation. The applicable tax year, trust classification, underlying income and investor residency must be checked before applying a tax treatment.