Consider the following statements : Statement-I : Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable. Statement-II : InvITs are recognized as borrowers under the 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002'. Which one of the following is correct in respect of the above statements?
- (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
- (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
- (c) Statement-I is correct but Statement-II is incorrect
- (d) Statement-I is incorrect but Statement-II is correct ✓ UPSC's answer
Why the answer is (d)
• InvITs pool investor money into revenue-earning infrastructure such as toll roads, power lines and pipelines, and must distribute at least 90% of cash flows to unit-holders.
• Statement-I is incorrect: interest income distributed by an InvIT is taxable in the hands of investors at their slab rate; it is the dividend component that is generally exempt (when the underlying SPV has not opted for the concessional tax regime) — the statement reverses the treatment.
• Statement-II is correct: the Finance Act, 2023 amended the SARFAESI Act to include InvITs and REITs as 'borrowers', so lenders can enforce security against their assets, easing debt financing.
• Hence Statement-I is incorrect but Statement-II is correct, option (d).
Why the other options are wrong
- (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation…
- Statement-I is wrong: interest from InvITs is taxable, not exempt.
- (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct…
- Statement-I is wrong, so both cannot be correct.
- (c) Statement-I is correct but Statement-II is incorrect
- It is Statement-I that is wrong and Statement-II that is right.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2023, held on 28 May 2023. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.