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?
Answer & explanation
Answer: (d) Statement-I is incorrect but Statement-II is correct
An InvIT is a 'pass-through' vehicle: interest it receives from its project SPVs is not taxed at the trust level but is taxed when distributed to unitholders, so Statement-I gets it the wrong way round. The Finance Act, 2021 widened the SARFAESI Act's definition of 'borrower' to include pooled investment vehicles such as InvITs, so Statement-II is right.
- ✗ Statement-I Under section 115UA of the Income-tax Act, interest income that an InvIT passes on to its unitholders is deemed to be their income and is taxed in their hands; it is not exempt.
- ✓ Statement-II From 1 April 2021, clause (f) of section 2(1) of the SARFAESI Act covers 'any person who, or a pooled investment vehicle' that has taken financial assistance, and business trusts such as InvITs and REITs are pooled investment vehicles. Lenders can therefore enforce security against them.
Remember · InvIT/REIT = business trust = pooled investment vehicle. Interest passed to unitholders is taxable in their hands. Since 2021, InvITs and REITs count as 'borrowers' under SARFAESI.
Sources
- Finance Bill 2021, Part X, Amendment to the SARFAESI Act, 2002 (Union Budget 2021-22) ↗ “It is proposed to amend clause (f) of sub-section (1) of the said section so as to clarify that the definition of “borrower” in the said Act shall also include a pooled investment vehicle … “pooled investment vehicle” means a fund established in India in the form of a trust or otherwise, such as mutual fund, alternative investment fund, collective investment scheme or a business trust”
- Memorandum explaining the provisions in the Finance Bill, 2020 ↗ “distributed income of the nature as referred to in clause (23FC) or clause (23FCA) of section 10 shall be deemed to be income of the unit holder and shall be charged to tax as income of the previous year.”
Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·