Q. Consider the following statements:
Statements – I:Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable.
Statements – 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?
Statement 1 is incorrect: InvITs are investment vehicles that pool funds from investors to invest in infrastructure projects. InvITs are pass-through entities, which means that the income and expenses of the InvIT are passed through to the unitholders. Under the latest budget 2023-24, all income distributed by InvITs, including interest income, dividend income, and rental income, will be taxable in the hands of unitholders. This is a change from the previous tax regime, under which only dividend income from InvITs was taxable. The reason for this change is to widen the tax base and to ensure that all income from InvITs is taxed, regardless of its source. This will help to ensure that all investors in InvITs pay their fair share of taxes. It is important to note that this change will only affect income distributed by InvITs. Income distributed by other types of trusts, such as real estate investment trusts (REITs), will not be affected.
Here are some additional details about the tax treatment of InvITs under the latest budget:
- Interest income from deposits in InvITs will be taxed at the investor’s marginal income tax rate.
- Dividend income from InvITs will be taxed at the dividend distribution tax (DDT) rate of 15%.
- Rental income from InvITs will be taxed at the investor’s marginal income tax rate.
Therefore, the given statement is incorrect.
Statement 2 is correct: InvITs are classified as borrowers under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The SARFAESI Act provides a legal framework for the securitization of financial assets and enables the enforcement of security interests in case of default.
