REITs and InvITs - Gaps in Regulations and Tax Law

March 13,2015
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Kanwal Gupta (Director,Deloitte Haskins & Sells LLP)

Real Estate and Infrastructure development have been considered as the drivers/facilitators for economic growth in the country.  To assuage the need for funds to such important sectors and also to provide an opportunity to investors to participate in the growing story in these sectors, SEBI has promulgated regulations providing the framework & structure for investments in the sectors. Further, the Government, vide amendments to the income-tax law has provided for taxing the various income streams in hands of the respective stake holders. However, it seems that there are a number of gaps and misses between the regulations and the tax provisions, which may result in the objectives not providing the necessary leverage and impetus to the sector. We outline some of the issues which may need a re-consideration and appropriate amendments to the tax laws to provide the necessary clarity to the stake-holders. 

  • Regulations 2(zs) of the Real Estate Investment Trust[1] (‘REIT’) and 2(zy) of the Infrastructure Investment Trust (‘InvIT’) provide that a Special Purpose Vehicle (‘SPV’) formed to hold the assets would mean any company or  limited liability partnership (‘LLP’). On the other hand, under the Income-tax Act, 1961 ‘(the Act’), section 10(23FC) explains that for the purposes of providing exemption to the business trust in respect of income in the nature of  interest received/ receivable from an SPV, an SPV would mean an Indian company. In this respect, though the REIT/ InvIT regulations were promulgated latter than the tax provisions, an anomaly has arisen on account of the omission to include LLP in the Finance Bill 2015, wherein LLP as an investment vehicle may not be considered in view of the fact that  no exemption would be provided to an LLP SPV.

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