Budget 2025: Experts Seek REIT Tax Reforms, Green Incentives
Industry experts and others are asking that the Union Budget of 2025 bring in a set of reforms and incentives under the tax for REIT, which is also a preferred asset among investors. Experts suggest that simple tax structure or green building concepts should be added to it according to the present sustainability goals.
India currently has four listed REITs, three of which mainly have office assets. Backed by big global and domestic investors like Blackstone and Brookfield, the REITs have received modest traction. Analysts feel reforms would substantially enhance their appeal for retail as well as institutional investors.
Arvind Nandan, Managing Director of Research and Consulting at Savills India, said this would be 'a game-changer' were tax benefits offered for REITs, more especially double taxation abolished on dividend income. Such benefits not only improve the liquidity but, he said, could attract broader participation and drive the market dynamism for foreign investments also.
Although REITs have attracted immense interest because of their hybrid structure of debt-and-equity nature and regularized cash flow distribution to investors, retails investors don't seem to fancy them much yet. Returns in REIT are subdued compared with other asset classes. For instance, the Embassy Office Parks REIT, the first listed REIT in India since its listing in April 2019, has merely appreciated by a little over 18% only, which falls way behind in comparison with its benchmark Nifty50 index at the same stage.
According to a report by the Indian REITs Association, or IRA, REITs have distributed more than Rs 18,000 crore since their inception. Experts say that to strengthen investor confidence, tax exemptions on dividends and capital gains, along with regulatory adjustments, are needed.
"This has been positive move by SEBI to introduce the regulations on small and medium-sized REITs, however, more measures should include capital gains exemption for direct transfer of assets, equal withholding tax for foreign portfolio investors, and an exemption on tax for dividends earned by the unitholder," said Shabala Shinde, Partner at Grant Thornton Bharat.
Shinde also recommended that charitable and religious institutions be allowed to invest in REITs and that the concessional 12.5% long-term capital gains tax rate be extended to listed securities held by REITs.
Incentivizing the development of green buildings could further bolster REITs. With growing ESG mandates, companies increasingly prefer leasing energy-efficient and sustainably built office spaces. Kaushal Agarwal, Co-founder and Director of The Guardians Real Estate Advisory, highlighted that 67% of India’s REIT-worthy office stock is green-certified, reflecting developers’ focus on sustainability.
Experts believe that targeted budgetary measures can bridge the gap between potential and performance in the REIT sector. A simplified tax regime and green building incentives could attract more investors, enhance liquidity, and align the sector with global sustainability standards. As the office market grapples with high vacancies and sluggish rental growth, such reforms could be instrumental in driving the segment toward maturity.
By addressing such challenges, Budget 2025 could position REITs as a cornerstone of India's real estate and financial markets, assuring sustainable growth and investor confidence.
