InvITs — interest income tax exemption; SARFAESI Act 2002 recognition as borrowers
Question
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?
Options
Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
Statement-I is correct but Statement-II is incorrect
Statement-I is incorrect but Statement-II is correct
Explanation
Statement-I is incorrect; the taxation rule is flipped. Interest income from an InvIT is fully taxable in the hands of the investor, whereas dividend income is generally exempt (if the underlying SPV has not opted for a lower tax regime). Statement-II is correct; a 2021 legislative amendment expressly recognized InvITs and REITs as "borrowers" under the SARFAESI Act to protect creditors.
Answer: (d).
Question details
Year
2023
Paper
GS Paper 1
Question
Q21
Subject
Economy
Sub-topic
Financial Markets & Instruments
Type
Assertion-Reason
Difficulty
Hard
Nature
Current-affairs-linked
Source hint
SEBI InvIT Regulations 2014 / Budget Tax Amendments 2023
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