Soothing to Real estate investment trusts and Infrastructure investment trusts, the Finance Bill has proposed to treat distribution from business as return of capital. While presenting the Union Budget on February 1, the government had proposed to tax income distributed by business trusts like REITs and InVITs in the form of debt repayments at the hands of unitholders.
However, the government has proposed to soften the tax impact on Real estate investment trusts (REITs) and Infrastructure investment trusts (InVITs) through amendments to the Finance Bill 2023. The Bill has been approved by the Lok Sabha.
The Finance Bill had earlier proposed to tax distribution from business trust as income from other sources at applicable rate. "This is now proposed to be treated as return of capital, i.e reduction from cost of acquisition, till the cost at which the unit was issued," an official said. However, any amount in excess of the issue price would be taxable as income.
Thus, the amendment would benefit the unitholders vis-a-vis the earlier proposal, the official added. Commenting on the changes proposed for REITs and InVITS, Vikaash Khdloya CEO, Embassy REIT welcomed the decision saying the regulators and authorities have done a commendable job in getting the structure off the ground since our listing as the first REIT in India back in April 2019. "Given the now attractive post-tax yields of the product, both institutional and retail investors stand to benefit from this positive development. "This clear, stable, and tax-efficient framework will continue to attract (domestic and foreign) capital to the evolving REIT asset class helping it maintain its position as the preferred total return investment product," Khdloya said.
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