Economics · Taxation of InvIT Distributions
An Infrastructure Investment Trust (InvIT) distributes funds to its unit holders. Under the provisions of the Income Tax Act in India, a distribution component that is explicitly categorized as 'Repayment of Debt' (or return of capital) is financially advantageous to retail investors primarily because:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It is immediately taxed as a Long-Term Capital Gain at 10% without any indexation benefit.
- 2It reduces the investor's cost of acquisition of the unit, effectively deferring capital gains tax until the unit is sold.✓
- 3It is taxed at a lower flat rate of 15% regardless of individual tax brackets.
- 4It is treated as standard income and exempt from tax forever.
Correct answer
It reduces the investor's cost of acquisition of the unit, effectively deferring capital gains tax until the unit is sold.
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