Infrastructure Investment Trusts (InvIT) and Real Estate Investment Trusts (REIT)

Background Context

The proposal internal to the Union Budget to tax dividend within the hands of unit holders/ investors would scratch & bruise future InvITs and REITs, say real estate and infrastructure industry officials, experts and analysts.

Infrastructure Investment Trusts (InvIT) and Real Estate Investment Trusts (REIT)

Why and how? 

  • Such a choice is oxymoronic to the government’s move to encourage InvITs and REITs to supply tax solidity to long-term infrastructure investors. 
  • Unreliability and unpredictability within, tax regime would sadden the sentiment of foreign investors who are already aware of the steadiness of tax regime in the India, they added.
  • The subsequence tax burden on the shoulders of investors will jeopardise and endanger, plans for take-up (raising) about $100 billion with reference to INVITs and REITs.

What are Infrastructure Investment Trusts (InvIT)? 

It is sort of an open-end fund (similar to mutual funds), which permit direct investment of small amounts of cash from potential individual/institutional investors in infrastructure to gain a little share or portion of the income as return.

  • InvITs are often served as the enhanced version of REITs designed to suit the precise situation of the infrastructure sector. 
  • They are similar to REIT, except invest in infrastructure projects like roads and highways which take a while to produce steady cash flows. 

What are Real Estate Investment Trusts (REIT)? 

A REIT is roughly a sort of an open-end fund (similar to mutual funds) that invests in Real Estate although the similarity doesn’t travel much ahead.

  • The basic idea on REITs is that you own a portion (share) of property, then an suitable and relevant share of the income from Real Estate investment come to you, after taking-out an relevant share of expenses.
  • Essentially, an idea is the “group of individuals pooling their finances together” and buying real estate except that it’s on an outsized scale (larger scale) and is regulated by the government.

Why need InvITs and REITs?

  • Infrastructure and Real Estate are the two most important economical segments in any developing country.
  • A well-crafted infrastructural framework (set-up) drives the general development of any nation.
  • It also facilitates and promotes a steady and gentle inflow of private and foreign investments, and thereby build-up (increase) the capital base available for the expansion of key sectors in an economy, also its own growth, in a sustained fashion.
  • Given the important and criticality of those two segments in the country, and the inadequacy of public funds available to stimulate their growth, it's essential that an additional stream of financing is put in the place. 

Source: The Hindu

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