Naredco seeks withdrawal of dividend tax on InvITs, REITs

Real estate developers' body Naredco on Tuesday said it has urged the government to withdraw tax on the dividend received by InvIT/REIT unitholders to keep the product attractive for investors.

As per the new proposed dividend distribution tax (DDT) rules, dividend income from shares and mutual funds to be taxed in the hands of the unitholder, instead of the company, at applicable income tax rates.

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

"Successful InvITs and REITs would 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," it said.

Naredco National President Niranjan Hiranandani said that if the proposed amendments to InvITs / REITs were to be implemented, the basic design principle of a single level of tax on income of the underlying assets held by these instruments would be compromised.

As per the new amendments, instead of a single level of tax, income from the underlying assets would be subject two levels of taxationonce at the level of the SPV and the second level of tax would apply to the unitholders, when the post-tax income of the SPV is distributed by the InvITs / REITs to the unitholders.

According to ratings agency ICRA, nearly Rs 2 lakh crore is estimated to be raised through InvITs in the next five years, which include those proposed by state-run companies like the NHAI and Power Grid Corporation.

Till date, Rs 22,000 crore have been raised from investors through InvITs, while another Rs 32,500 crore is in advanced stages.

Private equity player Blackstone Group and realty player K Raheja have been in advanced stages to launch Mindspace Business Parks REIT to raise over Rs 3000 crore.

Last year, Blackstone Group-sponsored Embassy Office Parks REIT, launched the counytry's first REIT and raised 4,750 crore.

As per industry reports, of the Grade A office space stock of over 500 million sqft in India, 294 million sqft would be eligible for REITs in India, translating to potential investment of USD 35 billion.