Consider the following statements: 1) 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. 2) Statement-II: InviTs are recognized as borrowers under the 'Securitization and Recon struction of Financial Assets and Enforcement of Security Interest Act, 2002'. [2023]

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 Recon struction of Financial Assets and Enforcement of Security Interest Act, 2002’.

Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-1
Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-1
Statement-1 is correct but Statement-II is incorrect
Statement-I is incorrect but Statement-II is correct

Any dividends or interest income earned from InvITs is fully taxable according to the investor’s income tax slab rate. Infrastructure Investment Trusts (InvITs) are pooled investment vehicles. InvITs invest in income generating commercial real estate properties and infrastructure assets via special purpose vehicles (SPV) through equity or debt instruments. Like mutual funds, they pool small amounts from individual and institutional investors and invest in infrastructure projects.
For example: IRB InvIT is a publicly listed infrastructure investment trust in India that primarily invests in toll road projects. It generates income through toll collections from vehicles using its highways. The income is then distributed to unitholders as dividends. The tax treatment for Infrastructure Investment Trusts (InvITs) as per the Finance Act 2023:

InvITs are classified as borrowers under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
- The Finance Act of 2021 amended the SARFAESI Act of 2002 to designate pooled investment vehicles as borrowers.
This Act provides a legal framework for the securitisation of financial assets and allows for the enforcement of security interests in the event of a default.