Realty trusts may get tax sops

RUN-UP TO THE BUDGET 2008-09

The Union Budget is likely to announce tax sops for Real Estate Investment Trusts (REITs) to bring them on par with mutual funds, even as finance minister P Chidambaram is expected to make corporate debt trading more attractive.

There could be broad financial reforms revolving around debt trading in India, said Sanjay Bhandarkar, managing director N M Rothschild & Sons (India).

"We could expect some tax concessions for REITs," Bhandarkar said. The Securities and Exchange Board of India had suggested a broad framework for REITs, but did not address the tax issues surrounding the new instrument.

Ved Prakash Arya, managing director of Milestone Capital Advisors, said that REITs enjoyed government support and tax benefits worldwide.

Hence, they are good mechanisms to hold properties and a means for retail households to participate in the growing real estate market.

"The finance minister should consider providing necessary tax breaks (as available worldwide, and similar to mutual funds) so that REITs became a reality rather than remain a dream," he said.

Shahina Mukadam, head of equity research at IDBI Capital Markets, expects the budget to give an impetus to capital formation and investments in infrastructure so as to sustain India's GDP growth of 9 per cent.

"At the same time, the focus will now be on streamlining the multiple tax exemptions granted to industry. For example, software companies in software technology parks do not currently pay tax," she said.

IDBI Capital Markets anticipates a marginal increase in the stock market-sensitive securities transaction tax (STT).

P Chidambaram had first introduced STT in the 2004 budget to meet the twin objectives of increasing compliance and revenues.

"We would not be surprised if these rates are increased marginally and the scope widened. But, we expect the agricultural sector to remain out of the tax net and do not see any cut in subsidies either. All in all, Budget 2007 will be politically correct and populist," she said.

Shahzad Madon, executive director and head of portfolio management services, does not see any additional tax burden on the urban population even although the finance minister may announce initiatives in urban infrastructure.

"The budget could be neutral for the HNIs, with no additional burden by way of direct taxes. In fact, given the buoyant tax collection, the FM could rationalize some direct taxes for individuals. New investment avenues, such as infrastructure bonds for tax savings, may be introduced." Madon said.