NAREDCO calls for withdrawing tax on dividend received by InvIT/REIT unitholders

The National Real Estate Development Council (NAREDCO) has urged the Centre to withdraw tax on the dividend received by unitholders of infrastructure investment trusts (InvITs) and real estate investment trusts (REITs).

Instead, they should be provided with a single-stage taxation structure as is currently available under the prevailing regulations to keep the product attractive for getting both foreign and domestic capital inflows.

The Finance Bill 2020 has imposed a tax on the dividend distributed to unitholders of InvITs and REITs. The Bill aims at moving the incidence of tax on dividend from companies to recipients.

In a letter to Economic Affairs Secretary Atanu Chakraborty, NAREDCO said that continuation of dividend exemption in the hands of unitholders will help in destressing the banking system as InvITs and REITs will be able to raise equity funds which could replace debt funds.

Successful InvITs and REITs will make the infrastructure and commercial real estate sector more robust and attract larger employment, which will help in revival of the economy and job creation which has been the focus of this government, said the apex body.

"The government's objective underpinning the taxation framework for InvITs and REITs was to provide for a single level of taxation on the income earned on the underlying assets," said NAREDCO National President Niranjan Hiranandani.

"If the proposed amendments are implemented, the basic design principle of a single level of tax on the income of underlying assets held by InvITs and REITs will be compromised," he said.

Instead of a single level of tax, the income from underlying assets will be subject two levels of taxation. Once at the level of special purpose vehicle (SPV), and the second level of tax will apply to unitholders when the post-tax income of SPV is distributed by InvITs and REITs to the unitholders.

NAREDCO Chairman Rajeev Talwar said policy stability is important to create a conducive investment environment. Dual taxation and an inefficient tax regime will encourage investors and sponsors to look at foreign InvITs and REITs jurisdictions for listings which offer single-level taxation and stability of tax framework.

"All key international jurisdictions like the United States, Britain and Singapore offer single-level tax framework for InvITs and REITs and therefore have attracted huge investments from across the globe," he said.

InvITs and REITs as a platform have globally generated huge investment opportunities and the cumulative market capitalisation is approaching two trillion dollars.

Of the grade A office space stock of over 500 million square feet in India, as per JLL Research, 294 million square feet of office space stock will be eligible for REITs in India.

This will translate to a potential investment of 35 billion dollars. Besides, there are many infrastructure assets including roads, ports, telecom assets, power assets and railways that can be listed as InvITs.

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