Sebi pitches for tax benefits on REITs, infrastructure bonds

Jun 21 2014, 14:19 IST
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'Sebi will soon finalise norms for REITs, but is awaiting clarity on taxation issues,' says U K Sinha. 'Sebi will soon finalise norms for REITs, but is awaiting clarity on taxation issues,' says U K Sinha.
SummaryTo give a boost to capital markets, Sebi has asked govt to provide clarity on tax benefits for REITs.

To give a boost to capital markets, regulator Sebi has asked the government to provide clarity on tax benefits for new products like REITs (Real Estate Investment Trusts), as also for Infrastructure Investment Trusts and for debt securities.

"Sebi will soon finalise norms for REITs, but is awaiting clarity on taxation issues," the Securities and Exchange Board of India (Sebi) Chairman U K Sinha said here today, while adding that the regulator wants such trusts to get tax pass- through status.

Besides, Sebi is also close to framing new rules for Infrastructure Investment Trusts but there needs to be clarity on withholding taxation issues for such products, Sinha said.

These new products would allow investors to invest in specific products linked to real estate projects and infrastructure projects, while providing necessary safeguards. Besides, these products would also help the corporates raise significant amounts of capital for their projects.

Speaking at a conference here, Sinha said that there are "certain anomalies in withholding tax on debt securities" and he hopes that the government would soon provide a clarity and also provide the tax pass-through status to REITs.

He said that REITs have been a significant vehicle for global investors and Indian markets can also soon tap this opportunity, as Sebi was ready with guidelines that would be announced immediately after tax clarity from the government.

About the need to expand corporate bond markets, Sinha said that necessary infrastructure for this was already in place and the related regulations have been simplified.

"I believe that an emerging market like India must focus on development of the market. The Sebi Act mandate is to work for growth of the market," Sinha said.

The Sebi Chairman further said that there was a need to work on increasing the base of corporate bonds.

Sinha also stressed on the need to encourage SMEs (Small and Medium Enterprises) to get listed and get benefited from the capital markets. Currently, the listed SME market capitalisation in India stands at over Rs 7,500 crore, while 65 companies have got listed on SME Platform of exchanges.

"We have identified certain SME clusters to encourage listing. The government and Sebi are trying to help SMEs raise capital from the markets," he said.

About the new regulations, Sinha said that Sebi would soon put in place norms for crowdfunding, which would allow start- ups to tap new platforms to raise funds.

Besides, there are already norms in place for Alternative Investment Funds (AIFs), such as venture capital and angel investors.

Sebi came out with a discussion paper on REITs last year and as per the draft norms such trusts would be allowed to list on stock exchanges through Initial Public Offer (IPO) and they can raise funds further through Follow-On Offers.

"We are hoping that we will be able to implement it (REITs regulations) very soon. In developed markets like the US, UK, Singapore and Japan, the REITs have been a significant way for investors to take advantage of growth in the real estate industry," Sinha said.

On one hand, these trusts allow investors to benefit from growth in real estate industry, while on the other hand they also help developers get the necessary funds, he added.

"Our rules are ready and we have taken up with the government that these entities must be given a pass through status so far as tax system is concerned.

"Sebi is hopeful that the government will consider it... Once there is clarity, we will be coming out with our regulations," Sinha said.

"In addition to REITs, we are also working towards infrastructure investment trusts. They will be working on similar principles... For infrastructure investment trusts, we are very close to finalising the regulations. We are in consultations with industry groups," he added.

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