If the all important ICRA is to be believed then all due to the initiatives and corrective measures taken by the government authorities, investor interest in REITs – real estate investment trusts has reached an all time high. REITs are already being hailed as the vehicle which will bring some much needed respite to the realty arena of the entire nation. Therefore the ever booming interest of investors in REITs is an immensely positive sign for the entire sector. But the only grey area of concern is the absolute lack of clarity over the applicable tax structures.
According to ICRA, the recent measures which have been adopted will go a long way in making REITs a success which they rightly deserve to be in the country. The introduction and application of REITs has already been delayed in the country thus the recent moves were much needed. But still many tax disadvantages prevail which might play spoilsports for REITs. The draft norms for establishment of REITs came into existence in the year 2013, while the final guidelines were issued by SEBI – securities exchange board of India in September 2014.
The centre government had extended a plethora of tax sops to REITs in the budget which was tabled during the 2014-15 session. But not a whole lot of progress could be made because of any clarity whatsoever as far as tax was concerned. The latest Union Budget which was tabled for the 2015-16 session extended further benefits for REITs. For instance, even more tax incentives were strategically extended via a pass through status to any and every rental income generated by REITs from the assets owned by it.
Further, the Union Budget had rationalized the capital gains levied for sponsors to a immensely great extent by providing exemption from LTCG – long-term capital gains (but subject to complete payment of STT – securities transaction tax to SEBI) on the REIT units received in lieu of shares of SPVs – Special Purpose Vehicles and therefore bringing it at absolute par with divesting stake in an IPO – Initial Public Offering. This is merely one instance; many other similar initiatives have also been taken which have put REITs on the fast track.
Therefore imagine a situation where clarity is delivered as far as tax is concerned. The otherwise hapless realty sector will get some much needed boost in that case. Real estate had been marred with sluggish demand and oversupply for almost half a decade now. But things are changing for the better at a fierce pace. REITs are most definitely the right step towards reestablishing the dominance of real estate in the country. REITs are here and they are here to stay.