The roll-out of the proposed real estate investment trust (REIT) regime has been deferred further, with certain members of the SEBI board seeking clarity on the tax benefits. The much-awaited introduction of REIT is now likely to happen only after the 2014 general elections, said sources close to the development.
One-level tax gain The final guidelines had been drafted by SEBI and discussed at the regulator’s board meeting last week. However, the final go-ahead did not come in.
The tax incentives demanded by the real estate industry include exemption of capital gains tax for transfer of assets made by the sponsor (usually a developer or a private equity fund) to an REIT special purpose vehicle (SPV), one-level taxation of gains either at the SPV level or at the recipient level and one-time waiver of the stamp duty.
In addition, the stakeholders are also demanding that when REIT units are traded on the exchanges, they should attract the same securities transaction tax and long-term and short-term capital gains tax as applicable to equities.
Furthermore, the Finance Ministry has also been reportedly sceptical about REIT from the point of transparency and valuation due to volatility in real estate markets, sources added.
‘Conventional’ Aseem Chawla, Partner, MPC Legal, a law firm, told Business Line: “Tax treatment of trusts under the existing scheme of the Income-Tax Act is still conventional. The other concern on REITs among foreign investors is the absence of clarity on whether tax credit will be available to them in their home country under the double-taxation avoidance agreements entered with India.”
SEBI has already approached the Income-Tax Department to seek tax benefits for REITs. However, the request has been put on the backburner owing to the upcoming general elections. According to sources, the RBI is also in favour of foreign investments in REITs.
Already struggling with a ballooning fiscal deficit in an election year, the Central Government is not keen to be seen doling out tax sops that may cause further revenue leakage. Any amendment in the Income-Tax Act facilitating a tax efficient status would be taken up only in the special Budget to be announced in July next year, according to sources in the Department of Revenue in the Ministry of Finance.
(with inputs from K.R. Srivats in New Delhi)