Govt gives relief for REITs, InVITs on Minimum Alternate Tax

The government today said minimum alternate tax would be applicable on the real estate and infrastructure investment trusts only when there is actual transfer of their units.
The announcement, made by Finance Minister Arun Jaitley in the Lok Sabha today, would provide relief to realty players who are planning to launch Real Estate Investment Trusts (REITs) for monetising their commercial assets.
"I propose to provide for exemption from levy of MAT on gains and losses arising from exchange of shares with the units of a business trust REIT/InvIT.
"The liability under Minimum Alternate Tax (MAT) will arise only on actual transfer of such units," Jaitley said while replying to the discussion on Finance Bill 2015-16 which was later passed by the Lok Sabha.

Earlier, MAT was also applicable on exchange of equity shares of an Special Purpose Vehicle for REIT or InVIT units.
REITs and Infrastructure Investment Trusts (InVITs) are aimed at attracting funds in a transparent manner into the real estate and infrastructure sectors.

Realty giant DLF, which is planning to float REITs, said the exemption removes a major policy hurdle and would give a significant boost to the establishment of these trusts.
It has been clarified that MAT would not be applicable on notional book gains, arising from exchange of shares in SPV with units of REITs/InvITs, DLF's Group CFO Ashok Tyagi said in a statement.

DLF plans to set up its first REIT within this year itself subject to receiving requisite approvals.
The easing of MAT applicability would make REITs and InvITS "far more viable and attractive", Tyagi said.
Welcoming the move, CREDAI President Getamber Anand said it would encourage companies which are planning to set up such trusts.
Jaitley said the Finance Bill 2014 provided for tax neutrality in respect of exchange of shares of a SPV with the units of a business trust. However, no neutrality/deferment of MAT liability was provided, he added.
According to him, the liability under the MAT may arise due to recording of exchange of the shares with the units at fair value in compliance with the provisions of notified accounting standards by a shareholder, being a company.

"This may result into cash flow problems for the companies," Jaitley said.
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.