New Tax Regime a Must for Smooth Take-Off of REITs in India
REITs might have to face some turbulent times before being fruitfully launched in India, due to the current tax rules, which make it an unattractive and stringent affair.
The rules announced by the Indian Government for setting up Real Estate Investment Trusts (REITs), which may spur $20 billion of property development, will not see the light of day unless the tax code of the country is revised.
With the onset of REITs, the debt-laden developers will have a new channel of funds to carry out construction of commercial spaces like malls and office buildings. This would indirectly assist the Government’s efforts to get the ball rolling for India’s economy. If changes are not made to the current tax rules, the wait for REITs might prolong, and the idea of greater transparency in asset pricing might get hindered.
What’s the Current Disadvantage?
Investors are not finding REITs attractive as of now, because under the existing rules, shares in these are to be held for a period of three years before they can be eligible for tax exemption. The lack of clarity regarding certain rules like the payment of minimum alternative tax by the developer of the trust has also made this instrument a disappointment amongst industry players.
The persisting tax rules of India, which make it unappealing to sell a security in less than three years, and the rules that hint on additional levies to be paid by builders have been acting as speed-breakers in hampering the quick launch of REITs in India.
According to the Chairman of CBRE South Asia Pvt. Ltd, Anshuman Magazine, until changes are made in the tax regime of India, REITs will not be able to take off. Currently, the developers in India do not have an incentive to take the trust route, and this would change only once issues with taxations are resolved.
A Wait for the Change
Keeping in mind the sentiments of the real estate enthusiasts, SEBI who has released the rules for establishing REITs in India, has been in discussion with the Finance Ministry to resolve these tax bottlenecks. However, Anshuman Magazine says that the changes to the tax regulations aren’t likely to be announced before the presentation of the next Indian Government budget.
Source: MyDigitalOfc & Livemint
