Infrastructure Investment Trusts (InvITs) are a relatively new investment avenue in India and the taxation rules for InvITs are governed by the Income Tax Act, 1961. Here are some important points to understand the taxation on investments in InvITs:
- Tax on dividends: InvITs distribute income earned from its assets in the form of dividends to its unit holders. As per the current tax laws, the dividends paid by InvITs are subject to Dividend Distribution Tax (DDT) at the rate of 25% plus applicable surcharge and cess.
- Capital gains tax: If you sell your units of InvITs after holding them for more than 12 months, the gains made from the sale will be treated as long-term capital gains. The long-term capital gains on the sale of InvIT units are taxed at the rate of 10% without indexation or 20% with indexation, whichever is lower. If you sell your units within 12 months, the gains will be considered as short-term capital gains and will be taxed as per the applicable income tax slab rate.
- Tax on interest income: If the InvIT earns any interest income, it will be subject to tax as per the normal provisions of the Income Tax Act.
- Tax deducted at source (TDS): InvITs are required to deduct TDS on the dividends paid to unit holders. The TDS rate is currently 10% plus applicable surcharge and cess.
- Taxation of non-resident unit holders: Non-resident unit holders are subject to taxation as per the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence. The DTAA provides for lower tax rates on dividends and capital gains as compared to the tax rates applicable to Indian residents.
It is always advisable to consult a tax expert to understand the tax implications of investing in InvITs and to make an informed investment decision.