Budget could relax capital gain norms for Reits and InvITs

Under existing rules, an investor in units of Reits and InvITs must pay short-term capital gains (STCG) tax of 15% on profits made on sale of units within three years of purchasing them. If the sale is made after three years, long-term capital gains (LTCG) tax of 10% is payable for gains over ₹1 lakh.

According to the people cited above, who spoke on the condition of anonymity, the finance ministry is considering a proposal to bring the taxation on these units on a par with equities, where listed and unlisted shares become eligible for LTCG benefit after one year and two years respectively.

The proposal, if implemented, could bring more domestic and foreign investments into the construction and infrastructure sectors.

An email sent to a finance ministry spokesperson remined unanswered till press time.

The change will offer flexibility to investors to move in and out of their investments in InvITs without waiting for a longer period to get tax advantage, an expert on taxation said on the condition of anonymity. This will also provide necessary liquidity to infrastructure projects getting monetized via such investment trusts.

In its pre-budget memorandum, the Confederation of Indian Industry (CII) has also suggested reducing the Reit/InvIT holding period to 12 months, on a par with listed securities. The industry lobby said a long holding period disincentivizes investors from seriously considering investment through business trusts, given the higher tax rate attracted when the gains are short-term in nature.

While work is on to revise the structure of capital gains tax, one of the two people cited earlier said the government may take a call on withdrawing LTCG tax. But any move in this direction could not be independently verified.