NEW DELHI : In a significant move to increase funds for the infrastructure and real estate sectors, the government on Monday proposed allowing foreign portfolio investors to access debt financing from emerging investment vehicles – REITs and InvIT.
In the Union budget for 2021-2022, Finance Minister Nirmala Sitharaman also proposed to exempt from taxes on dividends from REITs and InvITs, which will make these investment vehicles attractive and lucrative for investors.
REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) are relatively new investment instruments in the Indian context, but are popular in global markets.
While a REIT includes a portfolio of commercial real estate assets, much of which is already leased, InvIT includes a portfolio of infrastructure assets such as highways and power transmission assets.
“Debt financing of InVITs and REITs by foreign portfolio investors (REITs) will be made possible by making appropriate changes to relevant legislation,” said the Minister.
This will further facilitate access to funding for InvITs and REITs, thereby increasing funds for the infrastructure and real estate sectors, she added.
“The proposal to provide REITs with an entry into REIT and InvIT debt financing will open up a great source of fresh funding for the infrastructure and real estate sectors. It will also open a new avenue for REITs to invest in a growing market like India, ”said Manoj Purohit, Partner and Financial Services Tax Manager at BDO India.
In the context of the real estate sector, budget announcements relating to the monetization of infrastructure and real estate assets will help increase private sector participation and also help the government to improve the flow of funds for the development of critical infrastructure assets, Shishir Baijal, Chairman and CEO of said Knight Frank India.
Relaxing tax compliance for REIT investors will further improve the marketing of these products, as we will likely see new REITs this year, he added.
In order to facilitate compliance, the Minister of Finance has proposed to exempt dividend payments to the REIT and InvIT from withholding tax (TDS).
In addition, since the amount of dividend income cannot be correctly estimated by shareholders for the payment of withholding tax, the Minister proposed to provide that withholding tax on dividend income would not arise until after the withholding tax. declaration or payment of the dividend.
In addition, for REITs, it has been proposed to allow the deduction of tax on dividend income at a lower conventional rate.
V Balasubramaniam, MD and CEO, India INX welcomed the budget announcement allowing REITs and InvITs to be leveraged by REITs and is well positioned to provide listing and trading of these products on the stock exchange with a considerable ease of doing business and faster time to market for issuers and tax-efficient trading for foreign investors across time zones with 22 hours of non-stop trading.
“In addition, the FM’s announcement to exempt the dividend tax from REITs and InvITs will make them attractive and lucrative for investors,” he said.
Sandeep Upadhyay, MD (Infrastructure Advisory) at Centrum Capital Ltd, said TDS’s exemption on dividend payments to InvITs and REITS will certainly encourage more SWFs to invest in the sector.
The Securities and Exchange Board of India (Sebi) first published the guidelines for REITs and InvITs in 2014, and revised them in 2016 and 2017.
Since Sebi introduced InvITs, the markets have witnessed the listing of two public InvITs: IRB InvIT Fund and India Grid Trust. Some InvITs – IndInfravit Trust, India Infrastructure Trust, Oriental InfraTrust and Tower Infrastructure – have been placed in private.
Last week, Power Grid Corporation of India filed preliminary documents with Sebi to launch an infrastructure investment trust through which it seeks to raise more ??5,000 crores.
On the other hand, Embassy Office Parks REIT and Mindspace REIT are the only two listed REITs while Brookfield India REIT would launch its initial public offering on February 3.
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