Tax Holiday, Debt Financing Of REITs: Key Highlights Of Real Estate In Budget 2021

Budget 2021 Highlights: Allowing foreign investors to invest in debt of REITs increases the sources of capital, and could help further lower cost of debt for the REIT.

Tax Holiday, Debt Financing Of REITs: Key Highlights Of Real Estate In Budget 2021

Budget 2021: Finance Minister Nirmala Sitharaman presented the budget on February 1, 2021

Budget 2021: While presenting Budget 2021 in the Lok Sabha, Finance Minister Nirmala Sitharaman announced to increase the supply of affordable house, and announced the extension of the eligibility period for claiming tax holiday for affordable housing project by one more year to March 31, 2022. It was also proposed to allow a new tax exemption for the notified Affordable Rental Housing Projects. For the real estate sector, the government announced an additional interest deduction of Rs 1.5 lakhs for the acquisition of specified residential house property by individuals for loans obtained till March 31, 2022. Here are the key highlights of the real estate sector from Budget 2021:
 

  1. Section 194 of the Income Tax Act, governs the provisions for deduction of TDS on payment of dividend. Budget 2021 exempted dividends from real estate investment trusts or REITs. The current amendment aligns with the same wherein asset SPVs do not have to deduct TDS on payment of dividends to the trust.
     
  2. Debt financing of InVITs and REITs by foreign portfolio investors will be enabled by making suitable amendments in the relevant legislations. This will further ease access of finance to InVITS and REITs, augmenting funds for infrastructure and real estate sectors. 

    According to Murtuza Arsiwalla, Director, Kotak Institutional Equities, ​allowing foreign investors to invest in debt of REITs increases the sources of capital, and could help further lower cost of debt for the REIT. This will help facilitate REITs such as Embassy and Mindspace to increase their leverage profile.
     
  3. Budget 2021 also extends the benefit of Section 80 EEA (additional Rs150,000 interest deduction) for affordable housing, as well as Section 80 IAC (tax exemption available to a developer for affordable housing) for another year - upto 31st March 2022.
     
  4. Section 43 CA provided a safe harbour limit, wherein the transaction value of real estate could be 10 per cent lower than the assessable value. In order to encourage developers to liquidate inventory at lower prices, the budget has increased the safe harbour limit to 20 per cent from 10 per cent.