Move vital to keep the product attractive to attract both foreign and domestic capital inflows
Dual taxation to encourage investors and sponsors to look at foreign InvITs and REITs jurisdictions
New Delhi, 11th February 2020: National Real Estate Development Council (NAREDCO), an apex body, formed under the aegis of Ministry of Housing & Urban Affairs, has urged the Centre to withdraw tax on the dividend received by InvIT/REIT Unitholders and provide InvITs / REITs with a single stage taxation structure as is currently available under the prevailing regulations, to keep the product attractive to attract both foreign and domestic capital inflows.
In a letter to Economic Affairs Secretary Shri. Atanu Chakraborty, NAREDCO recommended 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.
Dr. Niranjan Hiranandani, National President, NAREDCO said that, “The Government’s objective behind underpinning the taxation framework for InvITs / REITs was aimed to provide single level taxation on the income earned from the underlying assets. If the proposed amendments were to be implemented, the basic design principle of a single level of tax on income generated on the underlying assets held by InvITs / REITs would be compromised.”
“Instead of a single level of tax, income from the underlying assets would be subject two levels of taxation – once at the level of the SPV; 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,” he added.
Mr. Rajeev Talwar, Chairman, NAREDCO said, “Policy stability is important to create a conducive investment environment. Dual taxation and an inefficient tax regime would encourage investors and sponsors to look at foreign InvITs and REITs jurisdictions for listings which offer single level taxation and stability of tax framework. All key international jurisdictions like the US, the UK, Singapore, etc. offer single level tax framework for InvITs and REITs and therefore have attracted huge investments from across the globe.”
The Finance Bill, 2020 has imposed tax on the dividend distributed to unitholders of the InvITs& REITs in the hands of the Unitholders. The Bill aims at moving the incidence of tax on dividend from the companies to the recipients.
InvITs / REITs as a platform has globally generated huge investment opportunities and the cumulative market capitalization is approaching USD 2 trillion. Of the Grade A office space stock of over 500 million square feet in India, as per JLL Research, 294 million square feet of office space stock would be eligible for REITs in India. This would translate to potential investment of USD 35 billion. Besides there are many Infrastructure assets including roads, ports, telecom assets, power assets, railways, etc. that could be listed as InvITs.