NAREDCO urges Centre to provide InvITs/REITs with a single-stage taxation structure

NAREDCO, an apex body formed under the aegis of the Ministry of Housing & Urban Affairs, has urged the Centre to withdraw tax on the dividend received by InvIT/REIT unit holders and provide InvITs and REITs with a single-stage taxation structure as is currently available under the prevailing regulations, to keep the product attractive and attract both foreign and domestic capital inflows.

In a letter to the Economic Affairs Secretary Atanu Chakraborty, NAREDCO argued that continuation of dividend exemption in the hands of unit holders will help destress the banking system as InvITs and REITs would be able to raise equity funds, which could replace debt funds. Successful InvITs and REITs would make the infrastructure and commercial real-estate sectors more robust and attract larger employment, which will help revive the economy and job creation, which has been the focus of the government.

Dr Niranjan Hiranandani, National President, NAREDCO, said, “The government’s objective underpinning the taxation framework for InvITs/REITs was to provide for a single level of taxation on the income earned on underlying assets. If the proposed amendments in relation to InvITs/REITs were to be implemented, the basic design principle of a single level of tax on income of the underlying assets held by InvITs/REITs would be compromised.” He added, “Instead of a single level of tax, income from underlying assets would be subject to two levels of taxation: One at the level of the SPV and the second level applying to the unit holders, when the post-tax income of the SPV is distributed by the InvITs/REITs to the unit holders.”

Rajeev Talwar, Chairman, NAREDCO, said, “Policy stability is important to create a conducive investment environment. Dual taxation and an inefficient tax regime would encourage investors and sponsors to look at foreign InvITs and REITs jurisdictions for listings, which offer single-level taxation and stability of tax framework. All key international jurisdictions like the US, UK and Singapore offer a single-level tax framework for InvITs and REITs and have, therefore, attracted huge investments from across the globe.”

The Finance Bill 2020 has imposed tax on the dividend distributed to unit holders of InvITs and REITs in the hands of the unit holders. The Bill aims at moving the incidence of tax on dividend from the companies to the recipients.

As a platform, InvITs and REITs have globally generated huge investment opportunities with a cumulative market capitalisation approaching $2 trillion. Of the Grade-A office space stock of over 500 million sq ft in India, as per JLL Research, 294 million sq ft of office space stock would be eligible for REITs in India. This would translate to a potential investment of $35 billion. Besides, there are many infrastructure assets, including roads, ports, telecom assets, power assets and railways, that could be listed as InvITs.