You are here: Home » Companies » Industry
Business Standard

Developers in no mood to embrace Reits despite budget sops

No clarity on MAT and DDT could be the biggest dampener for launching Reits

Raghavendra Kamath  |  Mumbai 

While the government may have moved a step closer to the launch of Real etstate investment trusts or Reits by giving certain exemptions in the union budget, developers and tax experts believe that some glitches still exist for the launch of the instrument.

Reits are like mutual funds which can be listed and traded on stock exchanges. They are tax efficient as they need to distribute majority of their income as dividends. In the Union Budget for 2015-16, the finance minister exempted capital gains for the sponsors at the time of listing of units of Reits and gave pass-through of rental income on assets held by Reits to unit holders, which were long pending demand of investors and developers.

But with no clarity on minimum alternate tax (MAT) and dividend distribution tax (DDT) could be the biggest dampeners for launching Reits, say developers and tax experts. Read our full coverage on Union Budget

"Internationally, there is no MAT or DDT. We will have to see whether investors find domestic structures attractive or not.

It depends on how investors look at tax implications here," said Rajeev Talwar, executive director at DLF, the counrty's largest developer which is expected to be benefited from launching Reits. Sunil Hingorani, director (finance) at K Raheja Corp, one of the largest owners of commercial properties in the country, elaborates.

"This (exemptions) do not do anything. When you are transfering assets to Reit, holding attract MAT on 100 per cent of notional gains," Hingorani says.

He adds that since distribute entire profits, there is a lot of tax leakage. Some like Punit Shah, co head of tax at KPMG believes MAT liability is triggered twice in Indian scenario. Shah says the exemptions announced by the FM becomes irrelevant since MAT liability is triggered twice once at the sponsor level when he transfers shares to Reit and secondly when they sell units of Reits.

"This could act as dampener in the process of launching Reits," he said, He said the FM has also not clarified on stamp duty which is a state subject.

However, Atul Ruia, managing director at Phoenix Mills say that barring DDT issue, budget proposals are extremely positive for the launch of Reits and they are seriously considering the launch of Reits this year.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Tue, March 03 2015. 16:16 IST