A long standing demand of the real estate industry and a third attempt by the market regulator SEBI to revive the Real Estate Investment Trust regime in India finally received a shot in the arm with the Government providing for a tax pass through status for REITs in the Budget proposals announced on Thursday.

Reworked proposals

Taking a cue from the announcement, SEBI has decided to take up the reworked REIT proposals for final approval and notification at its next board meeting, paving the way for its eventual rollout.

A senior SEBI official said: “The tax pass through status was the only stumbling block in implementation of the REIT and now that it has come through, SEBI is fully geared to present the approvals in our next board meeting itself.”

Under the taxation incentives proposed for REITs, interest income derived out of REITs for the unit holder would have pass through status while capital gains and dividend distribution will be taxed.

Industry experts stated that the move would help benefit developers monetise ready commercial assets, attract foreign and domestic capital and incentivise all those who are developing or investing in projects under construction by providing them an exit route through sale to REITs and help large players plan long gestation projects.

“Under the taxation regime proposed, the interest income derived by REITs to end investors would be subject to a favourable tax regime and there would also be deferment of tax on the initial transfer of property to REITs. However, income distributed to investors as dividend would continue to be subject to corporate income tax and dividend distribution tax,” said Gautam Mehra, Executive Director, PwC.

“Though industry was also expecting relief on the dividend distribution tax, what has come is still a huge positive for the industry and now all eyes would be on SEBI to announce the reworked REIT guidelines,” he added.

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