Section 161 of the
Income-tax Act provides that in case of a trust if its income consists of or
includes profits and gains of business then income of such trust shall be taxed
at the maximum marginal rate in the hands of
trust.
The special purpose entities set up in the form
of trust to undertake securitisation activities were facing problem due to lack
of special dispensation in respect of taxation under the Income-tax Act. The
taxation at the level of trust due to existing provisions was considered to be
restrictive particularly where the investors in the trust are persons which are
exempt from taxation under the provisions of the Income-tax Act like Mutual
Funds.
In order to facilitate the securitisation
process, it is proposed to provide a special taxation regime in respect of
taxation of income of securitisation entities, set up as a trust, from the
activity of securitisation. It is proposed to amend section 10 and also insert
a new Chapter XII-EA for providing a special tax regime. The salient features
of the special regime are :-
(i) In case of
securitisation vehicles which are set up as a trust and the activities of which
are regulated by either SEBI or RBI, the income from the activity of
securitisation of such trusts will be exempt from taxation.
(ii) The securitisation trust will
be liable to pay additional income-tax on income distributed to its investors
on the line of distribution tax levied in the case of mutual funds. The
additional income-tax shall be levied @ 25% in case of distribution being made
to investors who are individual and HUF and @ 30% in other cases. No additional
income-tax shall be payable if the income distributed by the securitisation
trust is received by a person who is exempt from tax under the Act.
(iii) Consequent to
the levy of distribution tax, the distributed income received by the investor
will be exempt from tax.
(iv) The securitisation trust will be liable to
pay interest at the rate of one percent. for every month or part of the month
on the amount of additional income-tax not paid within the specified time .
(v) The person responsible for payment of income
or the securitisation trust will be deemed to be an assessee in default in
respect of amount of tax payable by him or it in case the additional income-tax
is not paid to the credit of Central Government.
This amendment will take effect from 1st June,
2013.
