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Real Estate Investment Trusts and Infrastructure Investment Trusts to get Sebi push

8th August 2014,

NEW DELHI: The Securities and Exchange Board of India ( Sebi) is set to approve guidelines for Real Estate Investment Trust ( REITs) and Infrastructure Investment Trusts ( InvITs) at its board meeting on August 10 in the capital.
The Narendra Modi government had announced plans for such trusts in the July 10 Budget presented by finance minister Arun Jaitley. The trusts will allow companies engaged in infrastructure and real estate to raise longterm resources at competitive rates.
The trust structure is aimed at creating a framework of fast-track, investment-friendly and predictable public private partnerships (PPPs) to build large-scale projects that are of vital importance for India.
To raise long-term capital, the new guidelines will incentivise the creation of such trusts so that investors have a lower tax burden, apart from avoiding multiple taxation at different levels.

“The proposed move will help in unlocking funds from completed projects in infrastructure and real estate. The promoters of such projects, particularly the completed ones, would be able to sell their stake to the trust, which, in turn, can raise long-term, tax-free funds from unit holders,” said an investment banker involved in consultations before the guidelines were drafted.

The trusts will raise funds through the sale of units. This will be used to buy equity stakes in completed projects. Part of this can be invested as debt as well. Here’s a look at the proposed broad features of the trusts:

LISTING
– The value of assets held by an InvIT should exceed Rs 500 crore – The offer size should be more than Rs 250 crore – Trusts will have to invest 80 per cent or more of assets in completed and revenue- generating projects – An investor should subscribe to minimum Rs 10 lakh in any offer – Public should own minimum 25 per cent of outstanding units – Public offer will be open for a minimum 30 days – If offer fails to meet 75 per cent subscription, trusts will have to refund money – Trusts will have the right to retain maximum oversubscription 25 per cent – Trusts need to distribute at least 90 per cent of net distributable cash flows

TAX TREATMENT
– Portfolio companies will be subject to dividend distribution tax – Dividend of the trusts themselves will be exempted from the tax – Interest received by the trust will be completely exempted from tax – The trust will withhold tax on the interest component of the distributed income payable to the unit holders at the rate of 5% for non-resident unit holders and 10% for resident unit holders – The trust will be taxed on any capital gains it makes on the disposal of any assets at the applicable rate – The transfer of units of the listed trust will similar to listed shares.long-term capital gains on transfer of units will be exempt while short-term capital gains will be taxable at the rate of 15%, provided securities transaction tax is paid on the transfer of such units.