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• SEBI (Real Estate Investment Trusts) Regulations, 2014 dated 26.09.2014 provides for establishment of real estate investment trusts (REIT).

• Similarly, SEBI (Infrastructure Investment Trusts) Regulations, 2014 dated 26.09.2014 provides for establishment of Infrastructure investment trusts (IIT).

• REIT invests primarily in completed projects which generate revenue and distribute major part amongst the investors. REIT benefits the investors by providing an investment avenue, less risky than investing in an under constructed property. It also helps the sponsor (i.e usually a developer or a PE fund) by providing exit and enabling liquidity for investment in other/new projects.

• In case of IIT, it enables wide & long term refinance for existing infrastructure projects, enables developers to free their capital for reinvestment into new infrastructure project, helps in replacing high cost debt by long term low cost capital.

• In both cases, it enables investors to hold diversified portfolio of real estate/ infra assets.

• Summary of Amendments by the Finance Act, 2014 in respect of business trust (BT).

• BT defined as a trust registered as IIT or REIT with SEBI, units of which are listed, and notified by Central Government – sec 2(13A); • BT to file ROI – sec 139(4E);

• BT would enjoy a pass though status in respect of interest income from a SPV. Though the SPV paying interest to BT would not deduct TDS, BT would deduct TDS when distributing this interest to its unit holders (10% in case of resident unit holders and 5 % in case of non-resident unit holders);

• Dividend distributed by SPV would be subject to DDT u/s. 115O, and hence exempt in hands of BT. Similarly, when BT distributes dividend to its unit holders, the same would be exempt in the hands of unit holders;

• Capital gains at the time of sale of assets by the BT will be taxable in the hands of the trust at the applicable rate. If such capital gains are distributed, then the component of distributed income attributable to the capital gains would be exempt in the hands of the unit holder.

• Other income of BT would be taxed at MMR. If such income is then distributed, the same would be exempt in the hands of the unit holder;

• Units of the REIT when traded in stock exchange would attract similar tax treatments as equity shares i.e. these would be liable to the levy of Securities Transaction Tax, would be exempt from the levy of LTCG and STCG would attract rate of 15%; This benefit would be available to unit holders (except in the capacity as sponsor, who has been allotted units by BT in exchange of shares of SPV by sponsor to BT).

• Transfer of shares of SPV in exchange of units of BT would be exempt transfer in the hands of Sponsor. However, when the Sponsor sells these units, though period of holding of shares in SPV and cost of shares in SPV would be considered while computing capital gain, the reduced rate of STCG u/s.111A @ 15% and ‘nil’ LTCG u/s.10(38) on payment of STT would not be available. Accordingly, when a sponsor sells his units, he would be taxed @ 30% on STCG and 20% on LTCG.

• Therefore, effectively pass though status to BT only in respect of interest and dividend received from the SPV.



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