This year's budget lays the road map for providing long-term funds on a sustained basis to the cash-starved infrastructure sector. It envisages the creation of Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs).
The finance ministry has proposed a range of tax incentives for these trusts in line with its promise to create a framework of fast-track, investment friendly and predictable public-private partnerships (PPPs) to build large-scale projects that are of vital importance for India to compete in global markets.
The Infrastructure Investment Trusts will be listed on the bourses and their units will attract same levy of Securities Transaction Tax (STT) as equity shares of a company. The investors in the trusts will get similar tax treatment on capital gain as in the companies. They will not have to pay long-term capital gains tax while the applicable short-term capital gains tax would be 15%.
In addition, the interest income from the trusts' investment in infrastructure projects will not be taxable and there would be no withholding tax at the level of infra projects. The dividend income of the trusts will be subjected to dividend distribution tax on the company that is paying the dividend. The dividend received by the trusts can be distributed to the trusts' unit holders without any tax.
It can acquire controlling stake in income-generating infra projects, giving an exit option to cash-starved infrastructure promoters
Real estate investment trusts (REITs), which are close to becoming a reality, will help cash-strapped property developers access cheaper funds and give local investors the chance to invest in real estate without some of the attendant risks. REITs, which own and manage a portfolio of real estate properties by pooling in money from several investors, will get pass-through entity status and other incentives. A pass-through entity does not have to pay corporate tax. An REIT structure will reduce the pressure on the banking system and make available fresh equity to developers. The investment vehicle will attract long-term finance from foreign and domestic sources including non-resident Indians (NRI). REITs are listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds by selling completed buildings to investors and list them as a trust. Last October, the Securities and Exchange Board of India (Sebi) had issued a list of draft guidelines for REITs. The Bombay Stock Exchange said it has decided to form an 11-member advisory group, which will advise the exchange relating to the proposed framework on REITs. Some of the key positives of investing in REITS, analysts said, are that they are open to all investors whether resident or foreign subject to the clause that the foreign investment would be subject to Reserve Bank of India (RBI) guidelines, sponsor of the REIT would continue to hold a percentage of the units (of the REIT) during its lifetime, among others. The minimum asset size of Rs.1,000 crore for the REIT will ensure that only serious developers and investors are involved, as per guidelines. Analysts indicate that retail investors may initially shy away from REITs, but they would be lapped up by foreign banks, PE funds and institutional investors. The memorandum clarifies that apart from raising capital by issuing units, it can also raise debts directly both from resident as well as non-resident investors. The income-yielding assets would be held by the trust by acquiring controlling or other specific interest in an Indian company (SPV) from the sponsor. “Units of the listed REIT will be taxed akin to listed equity shares i.e. long-term capital gains will be exempt and short-term capital gains would be taxed at 15%,” said Gaurav Karnik, partner, tax and regulatory at EY. The government has clarified that the capital gains that will arise during transfer of shares of the SPV with units of the business trust, the taxation of the gains will be deferred and the sponsor (promoter) of the property will be taxed at the time of disposal of the units.
The finance ministry has proposed a range of tax incentives for these trusts in line with its promise to create a framework of fast-track, investment friendly and predictable public-private partnerships (PPPs) to build large-scale projects that are of vital importance for India to compete in global markets.
The Infrastructure Investment Trusts will be listed on the bourses and their units will attract same levy of Securities Transaction Tax (STT) as equity shares of a company. The investors in the trusts will get similar tax treatment on capital gain as in the companies. They will not have to pay long-term capital gains tax while the applicable short-term capital gains tax would be 15%.
In addition, the interest income from the trusts' investment in infrastructure projects will not be taxable and there would be no withholding tax at the level of infra projects. The dividend income of the trusts will be subjected to dividend distribution tax on the company that is paying the dividend. The dividend received by the trusts can be distributed to the trusts' unit holders without any tax.
It can acquire controlling stake in income-generating infra projects, giving an exit option to cash-starved infrastructure promoters
Real estate investment trusts (REITs), which are close to becoming a reality, will help cash-strapped property developers access cheaper funds and give local investors the chance to invest in real estate without some of the attendant risks. REITs, which own and manage a portfolio of real estate properties by pooling in money from several investors, will get pass-through entity status and other incentives. A pass-through entity does not have to pay corporate tax. An REIT structure will reduce the pressure on the banking system and make available fresh equity to developers. The investment vehicle will attract long-term finance from foreign and domestic sources including non-resident Indians (NRI). REITs are listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds by selling completed buildings to investors and list them as a trust. Last October, the Securities and Exchange Board of India (Sebi) had issued a list of draft guidelines for REITs. The Bombay Stock Exchange said it has decided to form an 11-member advisory group, which will advise the exchange relating to the proposed framework on REITs. Some of the key positives of investing in REITS, analysts said, are that they are open to all investors whether resident or foreign subject to the clause that the foreign investment would be subject to Reserve Bank of India (RBI) guidelines, sponsor of the REIT would continue to hold a percentage of the units (of the REIT) during its lifetime, among others. The minimum asset size of Rs.1,000 crore for the REIT will ensure that only serious developers and investors are involved, as per guidelines. Analysts indicate that retail investors may initially shy away from REITs, but they would be lapped up by foreign banks, PE funds and institutional investors. The memorandum clarifies that apart from raising capital by issuing units, it can also raise debts directly both from resident as well as non-resident investors. The income-yielding assets would be held by the trust by acquiring controlling or other specific interest in an Indian company (SPV) from the sponsor. “Units of the listed REIT will be taxed akin to listed equity shares i.e. long-term capital gains will be exempt and short-term capital gains would be taxed at 15%,” said Gaurav Karnik, partner, tax and regulatory at EY. The government has clarified that the capital gains that will arise during transfer of shares of the SPV with units of the business trust, the taxation of the gains will be deferred and the sponsor (promoter) of the property will be taxed at the time of disposal of the units.
2 comments:
Nice information shared here. Thanks for sharing. IT real estate in India
Nice post with great details. I really appreciate your info. Thanks for sharing property in India And I get more information for here. In future I hope you will provide same related blog.
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