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News & Views on Indian Real Estate

Thursday, February 14, 2008

Is there something for the Real Estate this budget?

Indian Real estate sector which is at its peak these days has become one of the largest employment generating industry in India is awaiting for the Union Budget for various issues like simplification of income tax structure, service tax reduction and FDI-related issues clarifications.

The real estate industry is deeply intertwined to the finance minister’s policies. Experts and key industry analysts predict that the industries plans in relation to sectoral concepts such as rental housing, and real estate investment trusts (REITs) to make housing more affordable for common man and help the industry raise more funds will rely a lot on the policy initiatives.

There is a demand for a new income tax provisions governing the real estate sector by the Confederation of Real Estate Developers’ Association of India (CREDAI) .The CREDAI has also asked the government to have a look at reducing taxations at Centre and state governments.
Industry experts suggest the lowering of the threshold of FDI below 50,000 sq meters to encourage more foreign investors and developers and to drive FDI momentum in Indian Realty. The government is required to remove the restriction imposed on the borrowing programmes like ECB and to open up more Fund raising mechanism of the industry. Doubts still prevail whether the realty firms can tap the GDR/ADR market.

Rotti said...

The other ask would be for the FM to announce a taxation regime for REITs before the REIT regulations are put in place. There is absolutely no talks about how REITs would be treated. I think it would be prudent to give a treatement similar to those enjoyed by mutual funds. This would make the distributions from REITs tax free in the hands of the unit holder. This should not cause revenue lekeage since dividend distribution tax would have been paid and REITs are required to distribute not less than 90% of taxable income as dividend. The FM could also consider bringing sale of REIT units under STT and grant a capital gains exemption. This would make REITs very attractive.

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