Hon’ble Finance Minister in its Finance Bill 2015-16 has proposed few much needed amendments in the taxation regime in respect of these Business Trusts which are discussed herein below in light of the relevant provisions of SEBI applicable Regulations:

1. 3
rd
March 2014
Subject to copyright of Corporate Professionals, Advisors & Advocates Page 1 of 4
“REITS” Vis-a-Vis Budget 2015-16
REITs /InvITs – Brief Background
In the Finance Bill 2014-15, the Hon’ble Finance Minister first introduces the concept of Real Estate
Investment Trust (REITs) and Infrastructure Investment Trusts (InvITs). Subsequently in September 2014,
the Securities Exchange Board of India, came out with detailed Regulations as to the functionality and
governance of these Business Trusts i.e. SEBI (Real Estate Investment Trust) Regulations 2014 and SEBI
(Infrastructure Investment Trust) Regulations 2014.
Since the promulgation of the aforesaid regulations, despite of high market interest, the Country has not
witnessed any registration or initiation of registration of these business trust with SEBI, the same being
due to less clarity on the taxations as well as disadvantageous tax position of the Sponsor/promoter of
these Trusts.
Owing to the industry representation, the Hon’ble Finance Minister in its Finance Bill 2015-16 has
proposed few much needed amendments in the taxation regime in respect of these Business Trusts
which are discussed herein below in light of the relevant provisions of SEBI applicable Regulations:
TAX AMENDMENTS (to be effective from 1st
April 2016)
A. Taxation on transfer of Sponsor Holding in SPV
SEBI Regulation: As per the applicable provisions of SEBI Regulations “the Sponsor(s) is required to
transfer, subject to binding agreement and adequate disclosures in the initial offer document, its
entire shareholding or interest in the SPV or entire ownership of the real estate assets to the REIT prior
to allotment of units of the REIT to the applicant”.
Existing Tax Provision: in case of transfer of sponsor’s/promoter’s shares of SPV (unlisted company) to
the REIT, the capital gain accruing to the Sponsor was deferred and was to be levied on the sponsor at

2. 3
rd
March 2014
Subject to copyright of Corporate Professionals, Advisors & Advocates Page 2 of 4
the time of disposal of units (of REITs) by the sponsor. This provision deprived the sponsors of
concessional tax regime relating to Capital Gains (levying of STT and exemption of LTG and STCG @15%)
and put them in a position disadvantageous to the other investors who are subject concessional tax
treatment of “NIL-15%”.
Amendments vide Budget 2015-16: having due regard to the industry representation and to give boost
to these Business Trust, following change has been introduced:
I. The sponsor would get the same tax treatment on offloading of units under an Initial offer on
listing of units as it would have been available had he offloaded the underlying shareholding
through an IPO.
II. The Finance (No. 2) Act, 2004 be amended to provide that STT shall be levied on sale of such
units of business trust which are acquired in lieu of shares of SPV, under an Initial offer at the
time of listing of units of business trust on similar lines as in the case of sale of unlisted equity
shares under an IPO.
III. The benefit of concessional tax regime of tax @15 % on STCG and exemption on LTCG under
section 10(38) of the Act shall be available to the sponsor on sale of units received in lieu of
shares of SPV subject to levy of STT.
B. Pass Through to the Rental Income
SEBI Regulation: As per the SEBI Regulations of REITs, “not less than 75% of the revenues of the REIT
and the SPV, other than gains arising from disposal of properties, shall be, at all times, from rental,
leasing and lending real estate assets or any other income incidental to the leasing of such assets.”
The Regulations further states that “not less than 75% of value of the REITs assets proportionality on a
consolidated basis shall be rent generating”
Existing Tax Provisions: As per the provisions of the SEBI, the income in REIT is predominantly in the
nature of rental income. This rental income arises from the assets held directly by REIT or held by it
through an SPV. The rental income received at the level of SPV gets passed through by way of interest or

3. 3
rd
March 2014
Subject to copyright of Corporate Professionals, Advisors & Advocates Page 3 of 4
dividend to the REIT. However, the rental income directly received by the REIT is taxable at REIT level
and does not get pass through benefit which remained to be a dampening issue for industry.
Amendments vide Budget 2015-16:
I. Any income of a business trust, being a real estate investment trust, by way of renting or
leasing or letting out any real estate asset owned directly by such business trust shall be
exempt;
II. The distributed income or any part thereof, received by a unit holder from the REIT, which is
in the nature of income by way of renting or leasing or letting out any real estate asset owned
directly by such REIT, shall be deemed to be income of such unit holder and shall be charged
to tax.
III. The REIT shall effect TDS on rental income allowed to be passed through. In case of resident
unit holder, tax shall deducted @ 10%, and in case of distribution to non-resident unit holder,
the tax shall be deducted at rate in force as applicable for deduction of tax on payment to the
non-resident of any sum chargeable to tax .
IV. No deduction shall be made under section 194-I of the Act where the income by way of rent is
credited or paid to a business trust, being a real estate investment trust, in respect of any real
estate asset held directly by such REIT.
C. Other TAX Treatment in case of Business Trust
(a) The listed units of a business trust, when traded on a recognised stock exchange, would be liable to
securities transaction tax (STT), and the long term capital gains shall be exempt and the short term
capital gains shall be taxable at the rate of 15%.
(b) Section 10 (23FC) of the Act provides that the Interest received or receivable to a REITs from a Special
Purpose Vehicle (SPV) shall not be included in its total income i.e. Interest Income shall be exempted
at the Business trust level and no withholding tax at the level of SPV.

4. 3
rd
March 2014
Subject to copyright of Corporate Professionals, Advisors & Advocates Page 4 of 4
CP COMMENTS:
By amending the tax law with respect to Sponsor transfer of holding, the sponsors have been brought
in par with other investors and also in par with the exit provisions as applicable in case of IPOs. The
removal of disparity and extending benefit of beneficial tax regime (STT) to the Sponsors is a welcome
change and will surely encourage corporates towards these Business Trusts. Further, the rental
income directly received by the REIT which was earlier taxable at REIT level has been given pass
through benefit, which will surely benefit the Real estate players, to bring in action, this potentially
powerful tool which was lying dormant since its inception.
For Further queries please feel free to contact
Ms. Deepika Vijay Sawhney
Partner
Corporate Professionals,
Advisors & Advocates
Mobile: + 91 9818316936
Tel: +91.11.40622229
E-mail :Deepika@indiacp.com
DISCLAIMER
This Document is on the analysis of the provisions contained in respective governing laws and our understanding and
interpretation of the same and should not be constituted as an advice. Also this is only a abridged document giving brief
about the provisions related to REITs Regulations, given in the Finance Bill 2015-16 and cannot be deemed to have detailed
coverage regarding the points covered and other conditions and provisions stipulated in the Finance Bill 2015-16 or
Regulations. For any further query, reference should be drawn to the Finance Bill 2015-16, Regulations and circulars as issued
from time to time or a detailed opinion may also be sought from us. We expressly disclaim any financial or other
responsibility arising due to any action taken by any person on the basis of this opinion.