Infrastructure Investment Trusts (InvITs)

Every time a truck pays toll on certain Indian highways, a slice of that money can end up as income for retail investors. This article covers Infrastructure Investment Trusts (InvITs), how they work, and how they’re taxed.

A toll plaza on National Highway 11, India. Toll roads like this are a common InvIT asset class. (Photo: TeshTesh, Wikimedia Commons, CC BY-SA 4.0)

InvITs at a Glance

IndEco0264

2014

SEBI Regulations

Notified 26 September 2014

90%

Mandatory Payout

Of net distributable cash flows to unit-holders

80%

Minimum Asset Rule

In completed, revenue-generating projects

2021

SARFAESI Recognition

InvITs recognised as ‘borrowers’

Why it matters: InvITs let retail investors buy into completed toll roads and power lines directly, instead of only through infrastructure company stocks or bonds.

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📑 Contents

1Must Know
2Good to Know
3Test Yourself
4Great to Know

📌 Must Know

Key Facts

An Infrastructure Investment Trust (InvIT) is a SEBI-regulated vehicle. It lets investors pool money into completed, revenue-generating infrastructure, like toll roads and power lines.
InvITs are governed by the SEBI (Infrastructure Investment Trusts) Regulations, 2014.
An InvIT must distribute at least 90% of its net distributable cash flows to unit-holders, at least once every six months.
A 2021 Finance Act amendment recognised InvITs as “borrowers” under the SARFAESI Act, 2002, giving lenders stronger recourse to recover dues.

💡 Good to Know

Deeper Context

An InvIT’s structure has four key roles. The sponsor is the promoter, needing at least Rs 100 crore capital. The trustee oversees the manager, like a board of directors. Then come the investment manager, and, where relevant, a project manager.
Sponsors must hold at least 15% of an InvIT’s units, locked in for three years.
A publicly offered InvIT must keep at least 80% of its asset value in completed, revenue-generating projects, not projects still under construction.
PowerGrid InvIT (sponsored by state-run PGCIL, registered 2021) and IRB InvIT Fund (India’s first toll-road-focused listed InvIT) are two prominent examples.

Previous Year Question.

Asked as: “Consider the following statements. Which one of the following is correct in respect of the above statements?” (on InvIT interest-income taxation and SARFAESI borrower status). This was asked in UPSC CSP 2023, GS Paper I. View this question.

Test Yourself

1. Consider the following statements. Which one of the following is correct in respect of the above 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 Reconstruction 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-I

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

Statement-I is correct but Statement-II is incorrect

Statement-I is incorrect but Statement-II is correct

🌟 Great to Know

Beyond the Basics

Before Budget 2023 changed the rules, an InvIT’s interest-income distributions were exempt from tax in investors’ hands. Dividend distributions, by contrast, were taxed at the investor’s slab rate. Budget 2023-24 later brought all distribution types under tax.
The SARFAESI recognition matters because it gives banks a faster legal route. They can enforce security interest to recover dues from a defaulting InvIT, instead of relying only on slower tribunal proceedings.
InvITs are a close cousin of REITs (Real Estate Investment Trusts). REITs use a similar pooled-investment structure, but hold rent-generating real estate instead of infrastructure.
India’s first InvIT, sponsored by IRB Infrastructure, listed in 2017. It opened a new financing route, for a sector long dominated by bank loans and government budgets.

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