Arun Jaitley

Reits may get tax break, MAT waiver

10:30 AM

REITs may get tax break, MAT waiver

Jaitley set to make realty exposure attractive


The government is likely to tweak tax norms to make real estate investments trusts (Reits) more attractive for listing on bourses and give a big push to investments in the sector. The move will allow retail and large investors to take exposure in real estate projects with definite revenue streams via Reits, officials in the know told Financial Chronicle without wanting to be named.

Finance minister Arun Jaitley, in his budget next month, is expected to announce a slew of measures to make Reits the engines of growth for the fast-expanding commercial real estate sector.

He is likely to rework the three-year lock-in for investments in Reits to avail exemption from capital gains tax, and bring them on par with listed securities. Investments in securities are currently exempt from capital gains tax after one year.

Jaitley is also said to be mulling over the possibility of completely exempting Reits from payment of minimum alternate tax (MAT) that’s applicable to all companies.

Reits typically make investments in office complexes, information technology parks, large malls, hotels, resorts, hospitals and residential complexes that have apartments on rent or lease. Investors can park funds in these trusts. These investments are similar to that made in stocks and commodities.

“The finance minister may not consider exempting only Reits from the purview of MAT. A comprehensive review of MAT’s applicability is being undertaken right now,” the official quoted earlier said.

The Securities Exchange Board of India (Sebi) had issued norms for listing the Reits on September 26, last year, requiring each trust to invest a minimum of Rs 500 crore.

Sebi allowed retail investors to invest at least Rs 2,00,000 into these trusts. On their part, the trusts have to distribute 90 per cent of rent or lease-rentals to investors as annual dividend.

The Reserve Bank of India (RBI) governor Raghuram Rajan, in his financial stability report shared with finance secretary Rajiv Mehrishi, has also favoured giving a big push to REITs that are very popular as investment instruments across Europe. Governor Rajan sent his report to Mehrishi on December 29, last year.

The report quoted the European Public Real Estate Association (EPRA) survey for 2014 that Reits were active in 37 countries. It also said these trusts had attracted over $140 billion in Asia till April 2014.

Rajan’s report has also referred to special tax considerations enjoyed by Reits elsewhere globally to enable them offer higher yields to investors and attracts more retail investors to the real estate sector.

A CBRE South Asia note has projected that in case the Reits are made more attractive in terms of reducing tax liabilities, India has the potential to attract about $20 billion to such trusts in the near term.

Property consultancy and brokerage Cushman and Wakefield too has estimated that as much as $12 billion could be mobilised into Reits in next three-five years.

Cushman and Wakefield said, India has been one of the largest growing markets globally during the past seven years with demand for commercial space growing at a very healthy pace in sync with the expanding economy. Annual demand for commercial office space in India has been pegged at a whopping 30 million sq ft or 2.6 million sq mt, the consultancy said.

Sebi chairman UK Sinha had hinted last month that the securities regulator was in discussion with finance ministry officials on reducing tax liability for Reits.

Developing the market for Reits may also help the government mobilise funds for expanding warehousing capacities in the country to enhance shelf life of agriculture products. Finance minister Jaitley, in his budget on July 10, 2014, had set aside Rs 5,000 crore for expansion of warehousing capacities to reduce the massive wastage of farm products.


By KA Badarinath for the Financial Chronicle

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