Government suggests tax obligation on REITs, InVITs

New Delhi: Seeking to expand the tax obligation base, the government suggested to tax obligation revenue dispersed by Real Estate Investment Trust (REIT) and also Infrastructure Investment Trust (InVIT) (generally described as company trust funds) in the type of financial debt settlements through system owners.

“It is proposed to tax distributed income by business trusts in the hands of a unit holder (other than dividend, interest or rent which is already taxable) on which tax is currently avoided both in the hands of unit holder as well as in the hands of business trust,” Finance Minister Nirmala Sitharaman claimed in her Budget speech.

The action is focused on broadening the tax obligation base. Explaining the relocate the memorandum of the Finance Bill, the government claimed that passion, reward and also rental revenue have actually been accorded a pass-through standing at the degree of company trust fund and also are taxed in the hands of the system owner.

“However, in respect of the distributions made by the business trust to its unit holders which are shown as repayment of debt, it is actually an income of unit holder which does not suffer taxation either in the hands of business trust or in the hands of unit holder,” it included.

The government claimed the twin non-taxation of any kind of circulation made by the company trust fund, which is excluded in the hands of business trust fund along with the system owner, is not the intent of the unique taxes program suitable to company trust funds. Therefore, “it is proposed to make such sum received by unit holder taxable in his hands.”

Hemal Mehta, Partner, Deloitte India, claimed the modification suggested for REIT/InVIT pertaining to circulation by way of ‘settlement of financial debt’ to the unitholders is currently covered under the ambit of taxes as various other revenue (web of price of acquisition of the system) which earlier was not caught.

“This was acting as an incentive for may sponsors. Any foreign investor receiving the said distribution will be taxed at 40 per cent plus surcharge,” Mehta claimed.