2023 GS Paper I, all questions

UPSC Prelims 2023 · GS Paper I

Question 21: Economy and Social Development

Consider the following statements :

  1. Statement-IInterest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable.
  2. Statement-IIInvITs are recognized as borrowers under the 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002'.

Which one of the following is correct in respect of the above statements?

aBoth Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
bBoth Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
cStatement-I is correct but Statement-II is incorrect
dStatement-I is incorrect but Statement-II is correct

AnswerUPSC’s answer is (d).

Statement I has the tax treatment reversed. For unitholders of an InvIT, the interest component of a distribution is taxable, while the dividend component is exempt, since the trust is a pass-through structure meant to avoid double taxation. Statement II is correct as UPSC has it: InvITs are recognised as borrowers under the SARFAESI Act, which helps lenders enforce security. So Statement I is wrong and Statement II is right.

  • I. Interest distributed to unitholders is taxable and dividend is exempt, not the reverse.
  • II. InvITs are recognised as borrowers under the SARFAESI Act.

How you could have got this

If you were sure Statement-I is not correct, only (d) is left: every other option says it is correct.

What you needed to know: Interest distributed to unitholders is taxable and dividend is exempt, not the reverse.

Which options go is worked out from UPSC’s key and the options, not by a model.

Why each option is right or wrong
  • (a) Statement I is wrong, so both cannot be correct.
  • (b) Statement I is wrong, so 'both correct' fails.
  • (c) Statement I is wrong because it swaps the tax treatment of interest and dividend.
  • (d) Correct: Statement I is false, Statement II is true.

Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.

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Source: UPSC, Civil Services (Preliminary) Examination 2023, General Studies Paper I, Series A. The paper on upsc.gov.in.