Budget 2014: REITs & infrastructure investment trusts to be incentivised

NEW DELHI: This year’s budget lays the road map for providing long-term funds on a sustained basis to the cash-starved infrastructure sector. It envisages the creation of Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs).

The finance ministry has proposed a range of tax incentives for these trusts in line with its promise to create a framework of fast-track, investment friendly and predictable publicprivate partnerships (PPPs) to build large-scale projects that are of vital importance for India to compete in global markets.

The Infrastructure Investment Trusts will be listed on the bourses and their units will attract same levy of Securities Transaction Tax (STT) as equity shares of a company. The investors in the trusts will get similar tax treatment on capital gain as in the companies. They will not have to pay long-term capital gains tax while the applicable short-term capital gains tax would be 15%.

In addition, the interest income from the trusts’ investment in infrastructure projects will not be taxable and there would be no withholding tax at the level of infra projects. The dividend income of the trusts will be subjected to dividend distribution tax on the company that is paying the dividend. The dividend received by the trusts can be distributed to the trusts’ unit holders without any tax. It can acquire controlling stake in income-generating infra projects, giving an exit option to cash-starved infrastructure promoters.

“The government has very clearly shown its focus on the infrastructure and real estate sector by making a proposal to provide a tax pass-through to infrastructure investment trusts and REITs,” said Bijal Ajinkya, partner, Khaitan and Co.