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?
Show answer
Answer: D. Statement-I is wrong: interest passed on by an InvIT to its investors is taxable in their hands, while dividends are generally exempt (if the SPV has not chosen the lower corporate tax regime). This is the reverse of the statement. Statement-II is correct: the Finance Act, 2021 widened the SARFAESI Act's definition of 'borrower' to include pooled investment vehicles such as InvITs and REITs, so lenders can enforce security against them. So I is incorrect, II is correct.
Watch for: Statement-I swaps interest and dividend; students who remember 'one is exempt' pick it as true.
Why the other options are wrong
- A. Wrong because Statement-I has the tax treatment reversed.
- B. Wrong because Statement-I is false.
- C. Wrong because Statement-I is false and Statement-II is true.
Source to check: Income-tax Act, 1961, Sections 10(23FD) and 115UA; Finance Act, 2021 amendment to Section 2(1)(f) of the SARFAESI Act, 2002 (borrower includes a pooled investment vehicle under Section 2(da) of the SCRA, 1956)
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.