The Securities and Exchange Board of India (SEBI) approved the setting up of Real Estate Investment Trusts (REIT) & Infrastructure Investment Trust (IIT) which is a new source of financing to India’s cash-strapped property developers.
REIT and IIT are Listed Entities that mainly invest in Income Producing Real Estate Assets, the earnings of which are mostly Distributed to their Shareholders. They will get Special Tax Treatment.
At its board meeting in New Delhi, the SEBI said REITs should operate with an asset pool of at least 5 billion rupees ($81.78 million) and have an initial issue size of at least 2.5 billion rupees for shareholders.
REITs will be allowed to invest only in commercial properties.
“The idea is that even if somebody can invest as low as Rs 2 lakh, such a person can get the benefit of the income from the completed projects,” U K Sinha – SEBI Chairman
Minimum Investment in REIT – INR 2 Lakhs and in IIT – INR 10 Lakhs.
The value of assets held by an IIT 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.
Portfolio companies will be subject to Dividend Distribution Tax. Dividend of the Trusts 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.