Ahead of Union Budget 2015, industry body Confederation of Indian Industry (CII) has urged the Government to exempt long term capital gains tax for sponsors of Real Estate Investment Trust (REITs)/ Infrastructure Investment Trust (InvITs).

“For sponsors to structure REITs/ InvITs, there is a need to exchange shares in Special Purpose Vehicles (SPVs) with units of REITs/InvITs. Such exchange of shares is in reality not a commercial transaction as the stakeholders of shares of SPVs are the same as unit holders of REITs/InvITs. Hence, there is no sound basis of taxing it,” CII said in a statement on Monday.

Last Budget had provided the 'pass through' status for the purpose of taxation for REITs and InvITs. SEBI, later, had put in place the regulations for listing of new business trust structure.

Chandrajit Banerjee, Director General, CII said, “As exchange of shares is being done only to initialise REITs/ InvITs with assets, therefore such gains should be exempt from Minimum Alternate Tax (MAT) as well as this act of exchange is not a transaction and therefore should not be treated as such.”

Further, since REITs need to mandatorily distribute almost the entire annual income as dividends to unit holders, the underlying SPV would necessarily have to suffer the dividend distribution tax (DDT) liability, the statement said.

 "This results in a multiple layer of tax, since the SPV would suffer this DDT levy in addition to corporate income tax on its taxable income. Outflow of Corporate Tax and DDT will bring down the earnings for distribution.  Hence, SPV should be exempt from DDT on dividend distributed to REITs/InvITs”, Banerjee added.

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