Govt proposes tax relief for REITs, InVITS

NEW DELHI: In a relief to REITs and InVITs, the Finance Bill on Friday proposed to treat distribution from business as return of capital.

While presenting the Union Budget on February 1, the government had proposed to tax income distributed by business trusts like REITs and InVITs in the form of debt repayments at the hands of unitholders.

However, the government on Friday proposed to soften the tax impact on Real estate investment trusts (REITs) and Infrastructure investment trusts (InVITs) through amendments to the Finance Bill 2023.

The Bill has been approved by the Lok Sabha.

The Finance Bill had earlier proposed to tax distribution from business trust as income from other sources at applicable rate.

"This is now proposed to be treated as return of capital, i.e reduction from cost of acquisition, till the cost at which the unit was issued," an official said.

However, any amount in excess of the issue price would be taxable as income.

Thus, the change would benefit the unitholders vis-a-vis the earlier proposal, the official added.

Commenting on the changes proposed for REITs and InVITS, Vikaash Khdloya CEO, Embassy REIT welcomed the decision saying the regulators and authorities have done a commendable job in getting the structure off the ground since our listing as the first REIT in India back in April 2019.

"Given the now attractive post-tax yields of the product, both institutional and retail investors stand to benefit from this positive development.

"This clear, stable, and tax-efficient framework will continue to attract (domestic and foreign) capital to the evolving REIT asset class helping it maintain its position as the preferred total return investment product," Khdloya said.

Piyush Gupta, MD, Capital Markets & Investment Services at Colliers India said the Union budget in February 2023 had announced that the income received by REIT/InvITs unitholders in the form of 'repayment of debt' will be taxed from April 2024, as other income which was otherwise not taxable.

This had created a dent in the post tax returns to the investors.

"However, amendment in March 2023, states that only a portion of this distribution will be taxed, after adjusting the cost of acquisition.

"So this gives breather to unit holders with no immediate tax implication and hence a reprieve to REIT/ INVit unit holders and the same can also be witnessed in increase in listed REIT unit price post the amendment," Gupta said.

REITs and InVITS have been termed as innovative investment vehicles enabling individuals to buy units and profit from revenue generating real estate and infrastructure.

At present, there are 5 REITs and 19 InvITs registered with market regulator Sebi.

Ready to Master Stock Valuation? ET’s Workshop is just around the corner!