Budget 2015: REITs move a step closer to reality

Real estate investment trusts ( REITs) came a step closer to becoming a reality with the finance minister announcing in Union Budget 2015 that the capital gains tax on transfer of property from developers' main company to a listed entity-a special purpose vehicle (SPV) formed for the purpose of running REITs-would be 'rationalised'.

Developers own office properties within their main company. If they launch REITs, these properties will have to be transferred to a special purpose vehicle (SPV).

The transfer of property would have led to capital gains tax liability. "By offering the assurance that capital gains will not be levied on developers transferring property, the finance minister has removed a major hurdle that was holding up the launch of real estate investment trusts in India," said Sanjay Dutt, Executive Managing Director, South Asia-Cushman and Wakefield, a global real estate consultant.

Real estate investment trusts were first announced in the 2014 Budget when the finance minister had announced that they would enjoy pass-through status on taxation. This budget (2015) reiterated that commitment by saying that "the rental income of REITs from their own assets will have pass-through facility".