Make REITs functional with complete exemption of Taxes: PHD Chamber

• PHD Chamber of Commerce and Industry along with CREDAI NCR today made a strong case for making Real Estate Investment Trusts (REITs) efficiently functional, seeking to completely exempt such trusts from taxation such as tax on rent, stamp duty, transfer of assets and distribution of dividends.

New Delhi, January 23, 2016: “These costs reduce the valuations of REITs and make them unviable and unattractive for investors and corporations” argued the Chamber in a paper brought out on REITs by it in collaboration with Cushman & Wakefield.

The paper which was jointly released here today at a National Real Estate Summit-2016 organized by the PHD Chamber of Commerce and Industry by Vice President, PHD Chamber, Mr. Anil Khaitan; Chairman, Delhi Urban Art Commission, Prof. Dr. P S N Rao; Chairman, Housing & Urban Development Committee, PHD Chamber & Member – Governing Board, CREDAI NCR, Mr. Rajeev Talwar and its Director, Dr. Ranjeet Mehta, however, highlights that though REITs regulations were released in September 2014, are, however, non-functional on account of current format of tax on them.

“Tax efficiency is critical to the success of REITs in India as REITs are not declared tax free unlike the global practice and required to pay tax on rent, stamp duty during transfer of assets and distribution of dividends which costs their valuations”, says the paper.

Since, unlike listed developers, REITs are mandatorily required to distribute 90% of net distributable income after tax to investors, the applicability of dividend distribution tax (DDT) is a dampener. To ensure real pass through, it would have been better if the government had dispensed with the DDT in case of REITs. If the SPV (Special Purpose Vehicle) is a company, the rental income earned by the SPV would be subject to corporate tax and subsequent distribution would be subject to DDT, highlights the paper adding that apart from the corporate tax, the SPV is required to pay dividend distribution tax @15% which significantly reduces the returns that can be generated by REITs.

In addition, the Chamber has demanded exemption of minimum alternate tax on REITs to encourage developers to firm up their REIT plans. Currently, REITs are required to pay the stamp duty at standard applicable rates based on the state regulations. This can range between 5% and 12% of the property value, concludes the paper.

Corporate Comm India(CCI Newswire)