Sections 221 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 221 and 222 start Part F of Chapter XIII, which is about pass-through entities. Section 221 taxes the income of a securitisation trust in the hands of its investors, and section 222 does the same for investors in a venture capital company or venture capital fund. This article explains both sections as per the Income-tax Act, 2025 as amended by the Finance Act, 2026.
The investor in a securitisation trust or a venture capital company or fund is taxed as if he had made the investment directly. Income that is not paid out is deemed credited on the last day of the tax year in the proportion of his entitlement, and is not taxed again when actually paid. The trust or fund and the person paying must furnish a statement as prescribed. Under section 222, Chapter XIX-B does not apply to the income paid.
By section 1(3), the Act is in force from 1 April 2026, save as otherwise provided. No Finance Act, 2026 amendment is named for these two sections. Later amendments, rules and notifications should be checked. For structuring questions on funds and trusts, see our tax planning advisory page.
Section 221: securitisation trusts
The basic rule, sub-section (1)
Irrespective of anything in the Act, where a person who is an investor in a securitisation trust receives any income, or any income accrues or arises to him, out of investments made in the trust, the income is chargeable to income-tax in the same manner as if it were income accruing, arising or received by him, had the trust's investments been made directly by him.
Nature and proportion, sub-section (2)
Income paid or credited by the trust is deemed to be of the same nature and in the same proportion in the investor's hands as if it had been received by, or had accrued to, the trust during the tax year. If the trust earned interest, the investor has interest; if the trust earned another kind of income, the investor has that kind.
Unpaid income, sub-section (3)
Income of the trust for a tax year which is not paid or credited to the investor is deemed to have been credited to his account:
- (a) on the last day of the tax year; and
- (b) in the same proportion in which he would have been entitled to receive it had it been paid in the tax year.
Statement, sub-section (4)
The person responsible for crediting or paying the income on behalf of the trust, and the trust itself, must furnish, within the period that may be prescribed, to the person liable to tax and to the prescribed income-tax authority, a statement in the form and verified in the manner prescribed, giving details of the nature of the income paid or credited in the tax year and other relevant details as prescribed. The period, form and manner are left to the Income-tax Rules, 2026; see our rule-wise guides.
No second tax on payment, sub-section (5)
Income already included in the investor's total income for a tax year because it accrued or arose in that year is not included again in the tax year in which it is actually paid to him.
Definitions, sub-section (6)
| Clause | Term | Meaning |
|---|---|---|
| (a) | Investor | A person who holds any securitised debt instrument or securities or security receipt issued by the securitisation trust |
| (b) | Securities | Debt securities issued by a Special Purpose Vehicle as referred to in the guidelines on securitisation of standard assets issued by the Reserve Bank of India |
| (c) | Securitised debt instrument | Same meaning as in regulation 2(1)(s) of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 |
| (d) | Securitisation trust | A trust that is a "special purpose distinct entity" under regulation 2(1)(u) of those regulations and regulated by them; or a "Special Purpose Vehicle" regulated by the Reserve Bank of India's guidelines on securitisation of standard assets; or a trust set up by a securitisation company or reconstruction company formed for the purposes of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, or under guidelines or directions of the Reserve Bank of India, which fulfils such conditions as may be prescribed |
| (e) | Security receipt | Same meaning as in section 2(1)(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 |
The definitions in clauses (c), (d) and (e) borrow from other laws, namely regulations made under the Securities and Exchange Board of India Act, 1992 and the Securities Contracts (Regulation) Act, 1956, and the 2002 Act. The reader should check those laws; this article explains nothing from them.
Section 222: venture capital undertakings
The basic rule, sub-section (1)
Irrespective of anything in any other provision of the Act, where a person, out of investments made in a venture capital company or venture capital fund, receives any income or any income accrues or arises to him, the income is chargeable to income-tax as if it were income accruing, arising or received by him, had he made investments directly in the venture capital undertaking.
Statement, sub-section (2)
The person responsible for crediting or paying the income on behalf of the company or fund, and the company or fund, must furnish within the time prescribed, to the person liable to tax and to the prescribed income-tax authority, a statement in the prescribed form and verified in the prescribed manner, with details of the nature of the income paid or credited in the tax year and other relevant details as prescribed.
Nature and proportion, sub-section (3)
Income paid or credited is deemed to be of the same nature and in the same proportion in the person's hands as it had in the hands of the company or fund.
Chapter XIX-B does not apply, sub-section (4)
The provisions of Chapter XIX-B shall not apply to the income paid by a venture capital company or venture capital fund under this Chapter. This is the Chapter on deduction and collection of tax at source; the main provision is explained in our overview of section 393.
Unpaid income and no second tax, sub-sections (5) and (6)
As in section 221, income of the company or fund from investments in a venture capital undertaking which is not paid or credited is deemed credited to the person's account on the last day of the tax year in the proportion of his entitlement (sub-section (5)). Income already included on accrual is not included again when actually paid (sub-section (6)).
Carve-out, sub-section (7)
Section 222 does not apply to income from investments made in a venture capital company or fund being an investment fund specified in section 224(10)(a). Such funds are dealt with under section 224; see our article on sections 223 and 224.
Meaning of terms, sub-section (8)
"Venture capital company", "venture capital fund" and "venture capital undertaking" have the meanings given in Schedule V (Note 4). Those meanings are not repeated here.
A worked example
The names and amounts are assumed; the Act prints no rate in these sections.
Meridian Receivables Trust is a securitisation trust. In a tax year it earns Rs. 6,00,000 and pays out nothing. Ms. Teodora Lund holds securitised debt instruments that entitle her to 25% of the income.
- Her proportion: Rs. 6,00,000 x 25% = Rs. 1,50,000
- Under section 221(3), that Rs. 1,50,000 is deemed credited to her account on the last day of the tax year
- Under section 221(1) and (2), it is chargeable in her hands as if she had made the trust's investments directly, and it keeps the nature it had in the trust
- If the trust pays her Rs. 1,50,000 in the next tax year, section 221(5) keeps it out of her total income for that year, because it was already included
Need help with a trust or fund investment?
Investors often meet these sections as a statement of income rather than as a payment. Our team can help you reconcile what was credited with what the trust or fund reported, and plan the position under our tax planning advisory service.
Key takeaways
- Section 221 makes the investor liable on a securitisation trust's income as if he had invested directly; section 222 does the same for venture capital companies and funds.
- Income keeps its nature and proportion.
- Income not paid is deemed credited on the last day of the tax year; it is not taxed again when paid.
- The payer and the trust or fund must furnish a statement as prescribed.
- Section 222(4) excludes Chapter XIX-B for the income paid by a venture capital company or fund, and section 222(7) leaves out an investment fund specified in section 224(10)(a).
Read next
- Sections 223 and 224: business trusts, investment funds and their unit holders
- Sections 218 to 220: IFSC units, conversion of a foreign bank branch and foreign company resident in India
- Section 393: the single TDS section
- Chapter XIII: determination of tax in special cases
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.