Govt gives new tax benefits for REITs, InviTs

In a fillip to investments in realty and infrastructure sectors, Finance Minister Arun Jaitley today rationalised capital gain tax regime for the sponsors of newly-created business structures REITs and INViTs.
In September 2014, market regulator SEBI had notified norms for listing of REITs and INViTs that would help attract more funds in a transparent manner into the real estate and infrastructure sectors.
"A step was taken in the last Budget to encourage Real Estate Investment Trusts (REITs) and Infrastructure Investments Trusts (INViTs) by providing partial pass through to them," Jaitley said in his budget speech.
These two trusts, which can be listed on stock exchanges, would help channelise both domestic and overseas investments into real estate and infrastructure projects in the country.

Stating that these collective investment vehicles have an important role to revive construction activity, the Finance Minister said that a large quantum of funds is locked up in various completed projects which need to be released to facilitate new infrastructure projects to take off.
"I therefore propose to rationalise the capital gains regime for the sponsors exiting at the time of listing of the units of REITs and INViTs, subject to payment of Securities Transaction Tax (STT). The rental income of REITs from their own assets will have pass through facility," Jaitley said.

Real estate developers and property consultants have been demanding further tax clarity in REITs to ensure the launch of this trust for commercial assets.

"In respect of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INViTs), it is proposed to provide that the sponsor will be given the same treatment on offloading of units at the time of listing as would have been available to him if he had offloaded his shareholding of special purpose vehicle (SPV) at the stage of direct listing," Jaitley said.
Further, the rental income arising from real estate assets directly held by the REIT is also proposed to be allowed to pass through and to be taxed in the hands of the unit holders of the REIT, he added.

REITs, a new investment avenue in India on the lines of one in developed markets like the US, UK, Japan, Hong Kong and Singapore, can be listed and trading would be allowed in units of REITs like any other security on stock exchanges. INViTs are also set up for similar purposes.
The tax incentives on would give much needed relief to the real estate sector, which is facing a huge slowdown in demand from last few years that had led to liquidity crunch and delay in completion of existing projects.