Disclaimer: Education only, not tax advice. India moved to the Income-tax Act, 2025 from 1 April 2026, and section numbers changed. Older articles (and older distribution statements) use the 1961 Act numbers. Confirm your own position with a qualified tax adviser. Figures are as of the date shown at the end of the page.
In simple words (if you are in class 10)
When the InvIT pays you, the money comes in different "colours":
- Interest colour: the road company paid interest to the InvIT, and the InvIT passes it to you. You pay tax on it like interest from a bank.
- Dividend colour: the road company paid a dividend. From 1 April 2026 this is generally tax-free for you.
- "Returning your money" colour: the road company repaid part of the loan the InvIT gave it. This is mostly your own money coming back, so it is mostly not taxed as income, but it lowers your purchase cost, so you may pay more tax when you sell.
Each colour keeps its colour as it passes through the InvIT. That is what "pass-through" means.
The professional view
The pass-through principle
Income distributed by a business trust is "deemed to be of the same nature and in the same proportion" in the unitholder's hands as it was in the trust's hands (section 115UA(1), Income-tax Act, 1961). Under the Income-tax Act, 2025 this sits in section 223, with the exemptions moved to Schedule V (Corporate Professionals, Aug 2026; Mondaq).
Section map: 1961 Act to 2025 Act
| Topic | 1961 Act | 2025 Act |
|---|---|---|
| Pass-through character | s.115UA | s.223 |
| Trust-level exemption for interest/dividend from SPV | s.10(23FC) | Schedule V, Table Sl. No. 3 |
| Rental income (REITs mainly) | s.10(23FCA) | Schedule V, Sl. No. 4 |
| Unitholder exemption for dividend (and other components) | s.10(23FD) | Schedule V, Sl. No. 5 |
| Taxation of residual "other" distributions (e.g. repayment of debt) | s.56(2)(xii) (Finance Act 2023) | s.92(2)(k), with cost reduction in s.72(4) (as reported by Mondaq) |
| TDS on distributions | s.194LBA | s.393 (Table entries) |
| SPV concessional tax regime | s.115BAA | s.200 |
Mapping as reported by the secondary sources above; confirm against the official Income-tax Act, 2025 text.
At the InvIT level
- Interest and dividend received from SPVs: exempt (1961: s.10(23FC); 2025: Schedule V).
- Other income of the trust (for example, interest on its own fixed deposits or capital gains on selling an SPV) is taxed in the trust's hands at the maximum marginal rate, subject to the special capital gains rate sections (s.115UA(2)).
At the unitholder level
| Component | How taxed | TDS by the InvIT |
|---|---|---|
| Interest | Taxable at your slab or applicable rate | Residents 10%; non-residents 5% (s.194LBA; 2025 Act s.393(1) and (2)) |
| Dividend | Exempt, with effect from 1 April 2026, regardless of whether the SPV chose the concessional regime: the Taxation and Other Laws (Amendment) Act, 2026 (gazetted 17 August 2026) removed the old condition (PRS; Corporate Professionals). Earlier, exempt only if the SPV had not opted for s.115BAA | 10% in the s.393 table for residents and non-residents (TDSMAN); the TDS table still lists this rate; whether deduction continues on now-exempt dividends should be confirmed with your tax adviser |
| Repayment of debt / other | Finance Act 2023 formula: taxable "specified sum" = A − B − C, where A is cumulative such distributions, B the issue price of the unit and C amounts already taxed (never below zero). Up to the issue price nothing is taxed now but your cost of acquisition is reduced; above it, the excess is taxed as income from other sources (Nishith Desai Associates) | Not covered by the s.194LBA / s.393 rates above |
| Capital gains on sale of listed units | Long-term if held over 12 months: 12.5% on gains above ₹1.25 lakh a year (s.112A in 1961 Act); short-term: 20% (s.111A), STT paid; rates effective 23 July 2024 | Not applicable for residents selling on exchange |
The 2023 change on repayment of debt was aimed at "tax-free" distributions that were, in substance, returns of capital received by investors who had paid more than face value. Read the Taxmann analysis for the debate.
Worked example (hypothetical)
You hold 1,000 units bought at ₹100 each (cost ₹1,00,000). In a year the InvIT pays ₹12 per unit: ₹7 interest, ₹1 dividend, ₹4 repayment of debt.
| Component | Amount | Treatment (resident, 30% slab, ignoring surcharge and cess) |
|---|---|---|
| Interest | ₹7,000 | Taxable; TDS ₹700; total tax ₹2,100 |
| Dividend | ₹1,000 | Exempt (from 1 April 2026) |
| Repayment of debt | ₹4,000 | Not taxed now (cumulative ₹4 a unit is below the ₹100 issue price); cost reduces to ₹96,000 |
| After-tax cash | ₹9,900 | Effective tax on distribution about 17.5% |
If you later sell for ₹1,00,000 after 12 months, your gain is ₹4,000 (₹1,00,000 − ₹96,000), taxed as long-term capital gain (within the ₹1.25 lakh annual exemption if you have no other gains). The split between components varies by InvIT and by quarter; read each distribution notice.
Points for practitioners
- SPV regime choice matters less for unitholders after 2026, but still matters for the SPV's own tax cost and its ability to carry forward losses and MAT credit.
- Withholding for non-residents: treaty relief may apply to interest; documentation (TRC, Form 10F) drives the rate.
- Statement to unitholders: the payer must give unitholders a statement of the nature of income (s.115UA(4); rule 12CA, Forms 64A/64B in the 1961 framework).
- The price of the dividend fix: the same 2026 Act raised the surcharge for business-trust SPVs on the concessional regime from 10% to 25% (PRS; RegFollower). So the regime choice still matters for the SPV's own tax cost.
Key takeaways
- Each rupee keeps its tax character from SPV to you.
- Interest is taxable with TDS; dividend is now generally exempt; repayment of debt mainly lowers your cost base.
- Section numbers changed on 1 April 2026: check which Act your source uses.
Sources
- Income Tax Department, s.115UA: https://incometaxindia.gov.in/w/section-115ua-8
- Income Tax Department, s.194LBA: https://www.incometaxindia.gov.in/w/section-194lba-14
- Corporate Professionals (Aug 2026) and Mondaq summaries of the 2026 amendments: linked above
- Taxmann on Finance Act 2023: linked above
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Education only. This page is not investment, tax, legal or accounting advice, and it does not recommend buying, selling or holding any security. Laws and rules change: check the linked primary source and consult a qualified professional before acting.
Last reviewed 25 October 2026. Spotted an error? Tell us and we will correct it.