Infrastructure Investment Trusts

Infrastructure Investment Trusts – Simplifying the Structure

The infrastructure sector is a key driver for any economy. Among the many avenues of financing large-scale investments in infrastructure, including mergers and acquisitions, private equity investments and capital raising, setting-up and establishing infrastructure investment trusts (“InvITs”) has begun to gain traction with developers of infrastructure projects, including by public sector undertakings, to enable them to monetise their assets and undertake further infrastructure development. In the last few months, an increasing interest has also been evinced by large private equity firms, development institutions and multilateral and bilateral financial institutions in not only investing in the units of InvITs, but also in setting-up InvITs either on their own or jointly with Indian developers due to the yields offered by InvITs and the favourable and welcome changes to the tax regime applicable to InvITs, including unlisted InvITs.
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mplications of the Finance Bill, 2020, on INVITs, REITs and its Unitholders

The Finance Minister, Nirmala Sitharaman, presented the Union Budget 2020-2021 on February 1, 2020 and consequently, introduced the Finance Bill, 2020 (“Bill”) in the Lok Sabha. The Bill comprises the financial proposals, including taxation related proposals, to amend the provisions of the Income-tax Act, 1961 (“Income-tax Act”) for the financial year 2021.

The Income-tax Act comprised provisions in relation to the taxability of, and exemptions available to, infrastructure investment trusts (“InvITs”) and real estate investment trusts (“REITs”, together with “InvITs”, referred to as “business trusts”) registered with the Securities and Exchange Board of India under the Securities Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”) or the Securities Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”), respectively.
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  Taxation of REITs in India

 

*An eight-part series covering the commercial and legal considerations of REIT listings in India. Click here to read Part III.

The Government started putting in place a framework for taxation of business trusts even before the regulations governing Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) were notified by the Securities Exchange Board of India (SEBI). This was not without reason – progressive regulations and tax reforms have influenced the progress of REITs globally, with REIT markets witnessing sudden growth spurts in countries such as Singapore and Hong Kong almost immediately following favourable tax amendments.

Closer home, five years and multiple amendments later, the Indian tax regime for REITs is a complex proposition and comes with a wishlist from nearly all stakeholders involved in a typical REIT. With Indian real estate likely to provide investment opportunity worth up to USD 77 bn through REIT-eligible commercial office and retail properties across India’s top seven cities by 2020[1], there can be no better time to look at some of the key issues.
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