Budget 2014: Incentives for REIT and InvITs

In a bid to offer a major boost to the infrastructure and real estate sector of the nation, Modi government’s maiden budget promised conducive tax regime for two crucial investment instruments- Infrastructure Investment Trusts and Real Estate Investment Trusts. Such a move is expected to rope in long-term funds from both domestic and foreign investors, including the NRIs. This year’s union budget lays the road map for offering long-term funds on an uninterrupted basis for the cash-crunched infrastructure and realty sector.

Worded as the budget 2014 highlights, experts quote that such instruments would offer a helping hand in cutting down the pressure on the banking sector, at the same time making fresh equity available. In tune with this, the finance ministry has proposed tax incentives for such trusts, along with a framework of investment friendly, fast track and PPP joint ventures to shape up large-scale projects, which would help India match wits in global markets.

REIT

As per definition, REIT is an organization which owns and operates (in some cases) income-producing real estate and has been used as an instrument for pooling investment in many countries. Introduction of the REIT in the present union budget will be a shot in the arm for the developers in India, helping in easing the liquidity requirements and paving the way to raise easy capital.

In tune with this, the government has allocated nearly Rs 50000 crore for urban housing and Rs 4000 crore for low cost housing in the present fiscal year. As per the budget, the SEBI (Securities and Exchange Board of India) and the government will ensure that investing in real estate in India directly and indirectly via the foreign direct investment becomes a hassle-free process.

InvITs

Infrastructure development, which was tossed aside for the last 10 years under the previous government rule, has received a huge face-lift in the Union Budget 2014. In accordance to the new budget, an Infrastructure Investment Trust (InvIT) will be set up to give adequate boost to the sector. On the infrastructural front, apart from the announcement of a bullet train the new budget also proposed a Diamond Quadrilateral rail network, to be shaped up connecting major metro cities. The Infrastructure Investment Trusts, which will be listed on the bourses, will offer the investors similar tax treatments on capital gain, as it is given in different companies.