LEGAL IMPLICATIONS OF TAX SECURITIZATION TRANSACTIONS IN INDIA

One of the most recent tactics to hit the financial markets in India is debt or asset securitization. Under asset securitization, a financial institution pools and packages individual loans and receivables creates securities against them, gets them rated, and sells them to the investors in the market, while the transactions involved during securitization attract taxation. Taxation issues surrounding securitization transactions have not been clearly clarified in the relevant tax laws in so far as regulations of securitizations are concerned (i.e., securitization transactions governed by RBI regulations or regulations of the Securities and Exchange Board of India (SEBI), the capital markets regulator). For instance, a lack of clarity in taxation provisions with respect to investment in the Security receipt (SRs) issued by the Asset Reconstruction Company (ARCs) is among the challenges. Moreover, Under the income-tax law, no specific tax rate is mentioned for the taxability of interest income or upside received by FPIs from their investment in the SRs. Thus, this study is a normative legal study that employs normative methods and looks for the provisions regarding the taxation of securitization transactions and its legal implications under Indian taxation regimes. Whereas provisions of tax statutes like the Income Tax Act and Stamp Duty Act are examined and analyzed in relation to other laws that govern securitization in India.