Govt proposes tax incentives for REITs, InvITs

The new investment products can be listed on stock exchanges

In a major boost for real estate and infrastructure sectors, the government today proposed tax incentives for two new investment instruments -- REITs and InvITs -- to help attract long term funds from foreign and domestic investors, including the NRIs.

The new investment products, Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), can be listed on stock exchanges like shares of any company and allow retail and institutional investors to buy or sell those securities.

Accepting a long-pending demand from the industry and the capital markets regulator Sebi, Finance Minister Arun Jaitley said while presenting Union Budget 2014-15 that REITs have been successfully used as instruments for pooling of investment in several countries.

"I intend to provide necessary incentives for REITs which will have pass through for the purpose of taxation. As an innovation, a modified REIT-type structure for infrastructure projects is also being announced as Infrastructure Investment Trusts (InvITs), which would have a similar tax efficient pass through status, for PPP (public-private partnership)and other infrastructure projects.

"These structures would reduce the pressure on the banking system while also making available fresh equity. I am confident these two instruments would attract long-term finance from foreign and domestic sources including NRIs," Jaitley said.

These new products would allow investors to invest in specific products linked to real estate projects and infrastructure projects, while providing necessary safeguards. Besides, these products would also help the corporates raise significant amounts of capital for their projects.

The Securities and Exchange Board of India (Sebi) had proposed draft regulations relating to these two categories. These regulations were placed in public domain for comments and the final norms are yet to be notified.

Sebi Chairman U K Sinha, last month, had asked government to provide clarity on tax benefits for these products. He had said that regulator was ready with guidelines that would be announced immediately after tax clarity from the government.

Noting the importance of certainty in the taxation aspects of REITs and InvITs, the government has proposed "to amend the Act to put in place a specific taxation regime for providing the way the income in the hands of such trusts is to be taxed and the taxability of the income distributed by such business trusts in the hands of the unit holders of such trusts".

This amendment would be effective from October 1, 2014.

The Minister said the listed units of a business trust, when traded on a recognised stock exchange, would attract same levy of securities transaction tax (STT), and would be given the same tax benefits in respect of taxability of capital gains as equity shares of a company i.E., long term capital gains, would be exempt and short term capital gains would be taxable at the rate of 15 per cent.