Budget 2025: Experts Call for Simplified Tax Structure and Green Building Incentives to Boost REITs
By: Admin
Date: January 21, 2025
Categories: Tax News
Reading Time: 4 Minutes
Experts and industry leaders are urging the Union Budget 2025 to prioritize tax incentives, simplify taxation, and promote green building initiatives to make real estate investment trusts (REITs) more attractive. These measures could encourage broader participation and drive growth in the real estate sector.
Why Simplified Taxation Can Boost REIT Adoption
Current REIT Landscape
India has four listed REITs, with three primarily focused on office assets. Prominent players like Blackstone and Brookfield back these REITs, yet they still struggle to capture the attention of retail investors.
“Exempting double taxation on dividend income would revolutionize REITs,” said the Managing Director of Research and Consulting at Savills India. This reform could improve liquidity, attract institutional and retail investors, and boost foreign investments, ultimately revitalizing the market.
Consistent Returns and Cash Flow Benefits
Despite slow retail adoption, REITs remain a favored option for their hybrid debt-equity structure and regular cash flow. According to the Indian REITs Association (IRA), REITs have distributed over ₹18,000 crore since their inception, showcasing their potential for steady income generation.
Challenges Hindering REIT Growth
Underperformance Compared to Benchmarks
India’s first listed REIT, Embassy Office Parks REIT, has seen an 18% share price increase since its 2019 debut on the National Stock Exchange. However, this lags significantly behind the Nifty 50’s growth during the same period, making investors cautious.
Market Dynamics and Low Retail Participation
High vacancy rates and slow rental growth in office markets have limited returns, deterring retail investors. Even though SEBI promotes REITs as a safe investment option, these factors make them less appealing for individual investors.
Proposed Reforms in Budget 2025
Experts believe the following changes in taxation and regulation could transform the REIT market:
- Tax Exemptions: Waiving capital gains, dividends, and asset transfer taxes to attract more investors.
- Withholding Tax Adjustments: Aligning withholding tax rates for foreign portfolio investors (FPIs).
- Regulatory Flexibility: Allowing charitable and religious institutions to invest in REITs.
- Concessional Tax Rates: Extending the 12.5% long-term capital gains tax rate for listed securities held by REITs.
How Green Building Incentives Could Drive REIT Growth
Green-Certified Office Spaces: A Rising Trend
With 67% of India’s REIT-eligible office spaces already green-certified, there is a strong foundation for growth. Sustainable, energy-efficient buildings not only meet environmental, social, and governance (ESG) criteria but are also increasingly preferred by tenants.
Budget Support for Sustainability
Providing tax benefits or incentives for green building development could drive REIT adoption further. Industry leaders emphasize that such incentives align with global sustainability goals and could enhance tenant retention rates, thereby boosting investor confidence.
Conclusion
The Union Budget 2025 offers a unique opportunity to make REITs a mainstream investment avenue. By simplifying tax structures, introducing green building incentives, and easing regulatory constraints, the government can enhance investor confidence and unlock significant growth potential in the real estate sector.
