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Friday, March 05, 2021

REITs, InVITs: Debt financing by FPIs, tax relief on dividends get nod

REITs are companies that fund, own and operate real estate projects while InVITS finance, construct and operate infrastructure projects such as highways and bridges.

Written by Karunjit Singh | New Delhi |
February 2, 2021 2:23:29 am
Experts said move will boost appeal among foreign investors.

In a move that is set to boost funding to the real estate and infrastructure sectors, Finance Minister Nirmala Sitharaman on Monday announced that the government would permit debt financing of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts(InVITs). The Finance Minister also announced that dividend payments to REITs and InVITs would be exempt from Tax Deduction at Source (TDS). REITs are companies that fund, own and operate real estate projects while InVITS finance, construct and operate infrastructure projects such as highways and bridges.

“Debt financing of InVITs and REITs by Foreign Portfolio Investors will be enabled by making suitable amendments in the relevant legislations. This will further ease access of finance to InVITS and REITs thus augmenting funds for infrastructure and real estate sectors,” said Sitharaman.

Experts noted that the move which provides greater flexibility to FPIs would boost access to finance for REITs and InVITs which would in turn boost investment for real estate and infrastructure projects. REITs and InVITs have gained popularity in recent years as they have become the preferred choice for Alternative Investment Funds looking to invest in the real estate and infrastructure space. The National Highways Authority of India is also in the process of setting up an InVIT to monetise its assets and has begun meeting with investor groups for the launch of the trust which is set to be operationalised this year.

“It’s is heartening to note that the FM has announced that FPIs will be permitted to invest debt in REITs and InVITs; and more importantly that relevant legislations will be amended to give effect to this,” said Santosh Janakiram, partner at law firm Cyril Amarchand Mangaldas, noting that the move would give a fillip to creating more InVits and REITs.

Experts also noted that the announcement to make dividends to REITs and InVITs exempt from any tax deductions at source would also boost the appeal of REITs and InVits as investment vehicles for foreign investors including sovereign wealth funds. The move is in line with the abolition of the Dividend Distribution Tax in the previous Union Budget, in favour of making dividends taxable in the hands of shareholders.

The Securities and Exchange Board of India (Sebi) first issued the guidelines for REITs and InvITs in 2014, and revised them in 2016 and 2017.

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