Changes to Finance Bill may revive REIT, InvIT market, attract capital

According to the Budget announcement, unitholders had to pay tax on dividend income distributed by REITs/InvITs

The amendments to the Finance Bill 2020 earlier this week, which exempt dividend earned by unitholders of real estate investment trusts (REITs) and infrastructure investment trusts (InVITs) from tax, are set to revive the market for these instruments.

According to the Budget announcement, unitholders had to pay tax on dividend income distributed by REITs/InvITs.

This was likely to adversely impact about six upcoming issues, including those by Brookfield and Reliance Industries’ Tower Infrastructure Trust along with K Raheja Corp’s Mindspace Business Park REIT. However, according to changes to the Finance Bill 2020, announced early this week, dividend earned from InvITs and REITs will be exempt in the hands of the unitholders as earlier if the SPVs opt for higher rate of corporate tax.

“The decision to continue with a single-level levy of income tax on InvITs and REITs is welcome, thus sending a positive message to investors on consistency in Indian tax laws. In the current environment, this is needed,” said Gautam Mehra, partner and leader, tax and regulatory services, PwC India.

This will further reduce pressure on the banking system by making available fresh equity, attract foreign funds and make it much more attractive to investors, he said.

Gaurav Karnik, national leader, real estate, EY said, “Reintroduction of the dividend tax exemption, albeit subject to conditions, coupled with income tax exemption given to sovereign wealth funds and pension funds for investments made by them in InvITs, are welcome steps. It should revive the REIT/InvIT market and attract long-term patient capital into the country.”

With the coronavirus (COVID-19) outbreak looming large on all industries, including the already suffering real estate sector, these are difficult times. But with this announcement, the government has encouraged issuers and investors to go back to REIT and InvIT issuances.

“It has encouraged and incentivised REITs and InvITs by avoiding multiple levels of taxation,” said Sigrid Zialcita, chief executive officer (CEO), Asia Pacific Real Estate Association (APREA).

Harsh Shah, CEO of IndiGrid, India’s first power sector infrastructure investment trust, said, “We welcome the ministry of finance’s new amendment to the February 2020 Budget proposal of taxing dividends in the hands of all investors, including REIT and InvIT unitholders. Exempting dividends from taxation, in the hands of unitholders, will restore confidence in REITs and InvITs.”