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The Indian government has amended the Finance Bill 2023 to reduce the tax burden on Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs), treating distributions as a return of capital rather than taxable income. The move, welcomed by industry experts, aims to create a more attractive, stable, and tax-efficient framework for these investment vehicles. The amendments are expected to encourage further investments in REITs and InVITs and fuel growth in the real estate and infrastructure sectors.
The Indian government has proposed changes to the Finance Bill 2023, aimed at reducing the tax burden on Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs). The amendments were approved by the Lok Sabha and will treat distributions from businesses as a return of capital, rather than taxing them as income from other sources.
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Initially, the Finance Bill proposed taxing income distributed by business trusts such as REITs and InVITs as debt repayments in the hands of unitholders. The revised proposal, however, aims to treat these distributions as a reduction from the cost of acquisition, up to the initial issue price. Any amount exceeding the issue price will still be taxable as income.
Industry experts, including Vikaash Khdloya, CEO of Embassy REIT, and Piyush Gupta, MD of Capital Markets & Investment Services at Colliers India, have welcomed the amendments. They believe that these changes will benefit both institutional and retail investors, by creating a more attractive, stable, and tax-efficient framework for the growing REIT asset class.
Currently, there are five REITs and 19 InVITs registered with the Securities and Exchange Board of India (SEBI), offering innovative investment options for individuals to profit from revenue-generating real estate and infrastructure projects. The amended Finance Bill 2023 aims to encourage further investment in these vehicles, as well as maintain their position as preferred total return investment products.
The initial proposal in the Union Budget of February 2023, which announced that income received by REIT and InVIT unitholders in the form of debt repayment would be taxed from April 2024, had created concerns among investors about the post-tax returns. The March 2023 amendment, however, clarifies that only a portion of this distribution will be taxed after adjusting for the cost of acquisition. As a result, unitholders will face no immediate tax implications, and the market has already responded positively, with an increase in listed REIT unit prices following the announcement.
In conclusion, the proposed tax relief measures for REITs and InVITs in the amended Finance Bill 2023 are expected to create a more favourable investment environment for both domestic and foreign investors. By offering a clearer and more stable tax framework, the Indian government aims to attract additional capital and fuel the growth of the real estate and infrastructure sectors.
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