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
Answer: D
Explanation
Statement I is incorrect. As per the Finance (No.2) Act, 2014, both dividend and interest income distributed by Infrastructure Investment Trusts (InvITs) to their investors are fully taxable at the investor’s applicable income tax slab rate. They are not exempted from tax. Statement II is correct. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) includes ‘pooled investment vehicles’ like InvITs within the definition of a ‘borrower’ if they have received financial assistance from banks or financial institutions. Therefore, Statement I is incorrect, while Statement II is correct. This question tests knowledge of financial instruments and their regulatory and taxation aspects, which are important for understanding capital markets and economic policy.