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The Union Budget FY22 brought about great relief for the Indian real estate sector, which needed a boost to revive quickly in the post-pandemic times. These include a number of amendments in the legislations that would exempt the payments to REITs and InVits from tax deductions at source (TDS). Only after the dividend is paid or declared, the advance-tax liabilities on the dividend income would arise.
The REIT regulations in India were drafted in 2007. These regulations underwent several updates and were finally announced on 26th September 2014. These updates kept the regulations in line with the various global norms. REITs aim to provide the real estate investors with an organised market and thereby increase investments in the sector. The real estate sector can use them as an exit platform and ease out its liquidity burdens. Moreover, REITs manage the ecosystem in the real estate sector professionally that is capable of averting risks.
Undoubtedly, REITs have played a crucial role in the growth and the smooth functioning of the Indian real estate sector. Another body, similar to REITs, has been built for the infrastructural projects. Known as Infrastructure Investment Trust or InVITs, this is an investment vehicle that acts as an intermediary between debt and equity. It holds the gas pipelines, roads, power transmission lines and other infrastructural assets that generate income. InVITs works similarly to mutual funds, with infrastructural assets replacing the financial securities.
Through REITs, the investors are able to improve their portfolio. The body also helps to solve the liquidity crunch that the Indian real estate sector has been undergoing. While the Union Budget this year included several positive changes for the real estate sector including the TDS exemption for REITs, not all the expectations were met. CREDAI had made several recommendations for Union Budget FY22 that did not get fulfilled. These include:
. The REITs or InVITs assets must be held for at least 36 months before they can be declared as long-term capital assets.
. The exemption for investments in REITs starting at INR 50,000 under Section 80 C should be extended.
. Reducing the holding period necessary for listed shares down to 12 months. This would bring the units under REITs at par with the investment in the listed securities and facilitate faster adoption of REITs.
Although these demands weren’t fulfilled by the budget, the changes that have been made are still noteworthy. The exemption from TDS would act as a major advantage for REITs. Moreover, an increasing number of investors would start searching for investment opportunities under REITs in order to benefit from the exemption.
The Union Budget this year evidently aims to revive the Indian economy through real estate. It is to be kept in mind that the real estate sector continues to be one of the most significant contributors of the country’s GDP and one of the largest employment generators. Although it faced considerable hurdles during the lockdown, the sector started to show green shoots of revival. With the budget implementing such changes, the industry is certain to thrive.
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