Some tax provisions are crafted not merely to collect revenue but to push the economy forward. Section 10(23DA) belongs to that category. As India’s banking sector matured and financial institutions began focusing on asset risk management, securitisation became a crucial tool. The government realised that to truly encourage loan market efficiency, securitisation vehicles needed clarity and tax neutrality. Without it, lenders would hesitate, investors would pay duplicate taxes, and capital recycling would slow down.
Section 10(23DA) was introduced to remove this friction & let securitisation trusts act as pure pass-through entities.
In essence: Income earned by a securitisation trust from securitisation activities is exempt.
Taxation happens later in the hands of investors, as per separate rules — not at the trust level.
Why This Exemption Exists
Securitisation helps financial institutions bundle & transfer loan assets, freeing up capital and reducing risk concentration. If such trusts were taxed first & investors later, the system would suffer from double taxation and inefficiency.
Thus, Section 10(23DA) ensures:
- No tax at trust level
- Investor-level tax consistency
- Capital recycling for banks & NBFCs"
- Lower systemic risk
- A transparent pass-through structure
The RBI, SEBI and government all worked in sync to shape this framework, especially after global financial reforms & India’s stressed-asset cycle in the 2010-2020 decade.
Also Read: Section 115TD of the Income Tax Act: Why Your Trust Isn't as Safe as You Think
Scope and Coverage
This exemption covers:
|
Covered Entity |
Covered Income |
|
Securitisation Trust |
Any income from the activity of securitization |
The phrase “any income of a securitisation trust from the activity of securitization” is deliberate. It provides broad coverage over:
- Transfer of receivables
- Assignment of loan pools
- Structured finance income
- Pass-through distributions
The intent is clear: do not tax the financial conduit — tax the final recipient.
Regulatory Backdrop
To qualify, securitisation trusts must follow specific guidelines:
- RBI Master Directions on Securitisation
- SEBI rules in case of listed securitised debt instruments
- Trust deed & SPV disclosure norms
This keeps the ecosystem credible, transparent & tracked — a lesson learned globally after the 2008 financial crisis.
Illustration to Understand Section 10(23DA)
Imagine a bank sells ₹500 crore worth of home loans to a securitisation trust.
The trust pools these loans, receives repayment installments, & passes income to investors.
Before Section 10(23DA):
- Trust might be taxed on income
- Investor again taxed
- Effective return drops"
- Deal attractiveness reduces
After Section 10(23DA):
- Trust level income exempt
- Investor taxed directly on distributions
- No leakage, smooth pass-through
This encourages securitisation — essential for credit liquidity in a growing economy.
Also Read: The Exemption Rule Powering Mutual Funds & UTI
How It Fits Within the Tax Architecture
While Section 10(23DA) handles trust-level exemption, connected principles operate through:
- Section 115TCA (taxation in hands of investors receiving distributions)
- RBI securitisation norms
- SEBI issuance rules
- Pass-through accounting framework
Together, they build a modern structured-credit ecosystem in India.
Real-World Use Cases
You see Section 10(23DA) in action in:
- Housing loan pool securitisation
- Vehicle loan portfolios
- Micro-finance & NBFC asset transfer deals
- Retail loan pass-throughs
- ARC securitisation structures
Its value is felt every time capital moves faster to productive sectors — often unnoticed but deeply impactful.
Why This Provision Matters Today
With rising fintech lending, co-lending models, and digital NBFC growth, securitisation is not a niche structure; it’s the backbone of credit expansion. Section 10(23DA) ensures:
- Smooth asset monetisation for lenders
- Greater funding access for borrowers
- Better investment avenues for institutions"
- Lower banking concentration risk
In short, it keeps India’s credit engine fluid.
Also Read: TDS on Virtual Digital Assets (Crypto, NFTs & More)
Key Takeaways
- Section 10(23DA) provides tax exemption for any income of a securitisation trust**
- Applies to any income of a securitization trust from the activity of securitization
- Designed to prevent double taxation & support capital markets
- Strengthens banking and NBFC liquidity
- Integral to the modern financial architecture
Conclusion
Section 10(23DA) is a prime example of how thoughtful tax policy supports economic growth. By exempting securitisation trusts & taxing beneficiaries instead, the law aligns with global best practices, clears operational bottlenecks and enables smoother credit transmission across the country.
In a financial system where capital mobility fuels enterprise, this provision quietly holds the engine together.
If you're dealing with securitisation structures, loan pools, NBFC tax planning or compliance on distributions, our expert CA team at CallMyCA.com can guide you with precision.
