The government has decided to exempt dividend payments to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) from tax deduction at source (TDS).
The budget states that the advance-tax liability on dividend income shall arise only after the declaration/payment of dividend. Presenting the Union Budget FY22, Finance Minister Nirmala Sitharaman said that the move has been made to provide ease of compliance.
Welcoming the move, Anshuman Magazine, Co-Chairman, CII National Committee on Real Estate & Housing and Chairman and CEO – India, South East Asia, Middle East and Africa, CBRE said, “Proposing to make dividend payments to REIT and Infrastructure investment trusts exempt from TDS this year is another great move as it will help address the liquidity situation in the real estate industry.”
Further, “Debt Financing of InvITs and REITs by Foreign Portfolio Investors has been enabled by suggesting amendments in the relevant legislations. This is likely to ease access of finance to InVITS and REITs thus augmenting funds for the infrastructure and real estate sector,” he added.
Reiterating the same, Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure Limited said, “For the investor community, we are pleased with the proposal to make dividend payments to REITs and InVITs exempt from TDS. The Indian real estate sector is at an interesting juncture and I strongly believe REITs will define the future as they allow investors to expand their range of properties.”
Understanding REITs & InvITs
In India, the draft REIT regulations were introduced in 2007. Since then, the market regulator continually revised the rules to meet global norms. After many updates, on 26 September 2014, REIT regulations were finally notified in India.
The India REIT regime is aimed at providing:
- An organised market for retail investors
- A professionally managed ecosystem that is risk-averse
- An exit platform for the real estate sector to ease out liquidity burden
Much like REITs, an Infrastructure Investment Trust or InvITs enables direct investment of small amounts of money from possible individual/institutional investors in infrastructure to earn a small portion of the income as a return. The objective of InvITs is to facilitate investment in the infrastructure sector.
Budget expectations vs. reality
REITs are a way of solving the liquidity problem in real estate. At the same time, it offers the investors a choice to diversify their portfolio.
CREDAI, in its budget recommendations, suggested:
- Extension of exemption under Section 80 C to investments in REITs starting with Rs 50,000
- For REITs/InVIT units to qualify as a long-term capital asset, it must be held for 36 months
- Reducing the holding period to 12 months as applicable for listed shares will lead to faster adoption of REITs and bring the units held in REITs at par with investment in listed securities.
While the demands are clearly unmet, exemption from TDS is definitely a good start. “The proposal to make dividend payments to REIT and InvITs exempt from TDS shall encourage retail individual investors to explore investment opportunities in REITs,” concluded Jaxay Shah, Chairman CREDAI National.