REITS vis-a-vis Budget 2015-16

REITs /InvITs – Brief Background:

In the Finance Bill 2014-15, the Hon’ble Finance Minister first introduces the concept of Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InvITs). Subsequently in September 2014, the Securities Exchange Board of India, came out with detailed Regulations as to the functionality and governance of these Business Trusts i.e. SEBI (Real Estate Investment Trust) Regulations 2014 and SEBI (Infrastructure Investment Trust) Regulations 2014.

Since the promulgation of the aforesaid regulations, despite of high market interest, the Country has not witnessed any registration or initiation of registration of these business trust with SEBI, the same being due to less clarity on the taxation as well as disadvantageous tax position of the Sponsor/promoter of these Trusts. 

Owing to the industry representation, the Hon’ble Finance Minister in its Finance Bill 2015-16 has proposed few much needed amendments in the taxation regime in respect of these Business Trusts which are discussed herein below in light of the relevant provisions of SEBI applicable Regulations:

TAX AMENDMENTS (to be effective from 1st April 2016)

A. Taxation on transfer of Sponsor Holding in SPV
B. Pass Through to the Rental Income
C. Other TAX Treatment in case of Business Trust

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By amending the tax law with respect to Sponsor transfer of holding, the sponsors have been brought in par with other investors and also in par with the exit provisions as applicable in case of IPOs. The removal of disparity and extending benefit of beneficial tax regime (STT) to the Sponsors is a welcome change and will surely encourage corporates towards these Business Trusts. Further, the rental income directly received by the REIT which was earlier taxable at REIT level has been given pass through benefit, which will surely benefit the Real estate players, to bring in action, this potentially powerful tool which was lying dormant since its inception.
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