Realty Sector Seeks More Tax Sops on REITs

New Delhi: To ensure success of the newly created Real Estate Investment Trust (REIT) structure, property developers and consultants have sought more tax incentives in the upcoming Union Budget on investments through this route.

In September 2014, the Securities and Exchange Board of India (Sebi) had notified norms for listing of new business trust structure REIT that would help attract more funds in a transparent manner into the realty sector.

The norms were notified after Finance Minister Arun Jaitley, in the last year's budget, had provided REITs the 'pass through' status for the purpose of taxation.

In its pre-Budget wish-list, JLL India chairman and country head Anuj Puri said, "Until vital changes to overcome the tax hurdles, REITs - which can literally be a life-saver for Indian real estate - cannot take off. In the interest of the real estate sector as well as the overall economy, the Budget must address this issue".

"We have got through pass through status. We need clarity with respect to double taxations," said Lalit Kumar Jain, chairman of realtors' apex body CREDAI.

He also said the state governments should provide some incentives such as lower stamp duty on properties under REITs.

The industry is anticipating taxation clarifications for REITs to begin functioning in the country, said Anshuman Magazine, CMD of CBRE South Asia, a global property consultant.

Much needs to be done on the tax structures of this instrument for it to become more efficient for domestic as well as overseas investors, he added.

"...the proposed tax structure for India REITs is biased towards overseas investors and could potentially translate into multiple tax levels for domestic investors," he said.

Mr Magazine listed other challenges, including a corporate income tax payable by the sponsor at the entry level followed by a possible tax leakage of 35-40 per cent on normal income, and a capital gains tax on the sale of REIT units by the sponsor at the exit level.

"All such taxation factors, among others, have in unison kept back market players from investing in the real estate sector through REITs," Mr Magazine noted.

For REITs to become a success in India, CBRE said that issues like analyst coverage for this instrument in India, initial property valuations, and approvals of large bank loans for the holding trusts, need to be answered.

Stating that REIT market would require strong support from the government and existing investors, CBRE said, "The real estate investor community, hence, awaits clarifications related to taxation and regulations so that execution timelines and investment strategies may be planned ahead."

REITs, a new investment avenue in India on the lines of one in developed markets like the US, UK, Japan, Hong Kong and Singapore, can be listed and trading would be allowed in units of REITs like any other security on stock exchanges.