In a major step to augment funds for the infrastructure and real estate sectors, the government has proposed permitting foreign portfolio investors an entry into debt financing of emerging investment vehicles - real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).

"Debt financing of InVITs and REITs by foreign portfolio investors (FPIs) will be enabled by making suitable amendments in the relevant legislations," Finance Minister Nirmala Sitharaman said while presenting the Union Budget 2021-22 in Parliament.

REITs and are relatively new investment instruments in the Indian context but are extremely popular in global markets. While a REIT comprises a portfolio of commercial real assets, a major portion of which are already leased out, InvIT comprises a portfolio of infrastructure assets such as highways, power transmission assets.

This will further ease access of finance to InvITS and REITs thus augmenting funds for infrastructure and real estate sectors, she added. In order to provide ease of compliance, the finance minister proposed to make dividend payments to REIT and InvIT exempt from tax deducted at source (TDS).

Further, as the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax, the minister proposed to provide that advance tax liability on dividend income would arise only after the declaration/payment of dividend.  In addition,  for FPIs, it has been proposed to enable deduction of tax on dividend income at a lower treaty rate. Sebi first issued the guidelines for REITs and InvITs in 2014, and revised them in 2016 and 2017.

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