Budget 2025: Experts Call for Simplified Tax Structure and Green Building Incentives to Boost REITs
By: Admin
January 21, 2025
Categories: Tax News
Reading Time: 4 Minutes
The Union Budget 2025 is expected to include reforms that simplify tax structures, introduce green building incentives, and enhance the appeal of real estate investment trusts (REITs). Experts believe these measures could drive growth in the sector while attracting more investors.
Simplified Taxation: A Boost for REITs
Current Landscape of REITs in India
India currently has four listed REITs, with three focused on office assets. These REITs, supported by major players like Blackstone and Brookfield, are gradually gaining traction. However, retail investor participation remains low.
“Exempting double taxation on dividend income would be a game-changer for REITs,” said the Managing Director of Research and Consulting at Savills India. This tax reform could increase liquidity, attract more retail and institutional investors, and encourage foreign investment.
Hybrid Appeal and Cash Flow Benefits
Despite low retail participation, REITs are popular for their hybrid debt-equity structure. They offer consistent cash flow distribution, with over ₹18,000 crore disbursed since their inception, according to the Indian REITs Association (IRA).
Challenges and Opportunities in the REIT Sector
Lagging Behind Market Benchmarks
The performance of India’s first listed REIT, Embassy Office Parks REIT, highlights the sector’s challenges. Since its listing in April 2019, its share price has risen by 18%, trailing the Nifty 50 benchmark over the same period.
Market Dynamics and Investor Hesitation
High vacancy rates and slow rental growth have left investors cautious. While REITs are promoted by SEBI as a safe investment avenue, many retail investors remain hesitant due to sluggish returns.
Proposed Budget Reforms for REITs
To address these issues, experts have outlined several recommendations:
- Tax Exemptions: Waive capital gains, dividends, and asset transfer taxes to encourage participation.
- Withholding Tax Alignment: Adjust rates for foreign portfolio investors (FPIs).
- Regulatory Flexibility: Allow charitable and religious institutions to invest in REITs.
- Concessional Tax Rates: Extend the 12.5% long-term capital gains rate for listed securities held by REITs.
Implementing these reforms could significantly enhance the appeal of REITs as an asset class.
Green Building Incentives: A Catalyst for REIT Growth
ESG Alignment and Tenant Preferences
With 67% of REIT-eligible office spaces in India being green-certified, experts see an opportunity to drive sustainable development. Green buildings meet ESG requirements and are increasingly preferred by tenants.
Potential Budget Support
Incentivizing green building development through tax benefits could further boost REIT adoption. Industry leaders believe such measures align with India’s broader sustainability goals while ensuring higher tenant satisfaction.
Conclusion
The Union Budget 2025 holds the potential to transform REITs into a more attractive asset class. By simplifying tax structures, introducing green building incentives, and easing regulations, the government can enhance investor confidence, boost liquidity, and drive growth in the real estate market.
