Sponsors swapping shares of a special purpose vehicle (SPV) holding real-estate or infra asset with units of REIT/ InvIT and subsequently divesting the units on the stock exchange, will be taxed similar to that of an initial public offer (IPO).
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Hemal Mehta, Senior Director, Deloitte in India said the earlier proposition was to only defer the taxation of gains at the time of divestment of units. This move will certainly create an alternative funding opportunity for sponsors as the tax treatment is on par with raising funds through IPO.
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“The rental income earned by REIT (Real Estate Investment Trusts) from owning the asset directly will be considered as a pass-through and will be taxable in the hands of unit-holders,” Mehta said.
For a resident unit-holder, REIT will be obliged to withhold tax at 10 per cent while for a non-resident investor, it could range from 30 to 40 per cent, which needs to be determined based on the taxability of the non-resident in India. This amendment may not be beneficial for non-resident investors.”
“The Finance Minister proposes to rationalise the capital gains regime for REITs, but has not given any specifics. This could mean that the sponsor of a REIT may get a one-time capital exemption in exchange for units, but this needs to be confirmed,” said Anuj Puri, Chairman and Country Head, JLL India.
Mike Holland, Chief Executive Officer, Embassy Office Parks, said, “Indicators that tax pass-through on REITs will be implemented is laudable.
“If the understanding is correct, this has the potential to stimulate the REIT market in India.”
Shrinivas Rao, CEO-Asia Pacific, Vestian, said the “proposal to overhaul capital gains taxes to make way for the listing of REITs is a vital step forward.
(This article was published on February 28, 2015)