India: Analysis Of Effect Of Amendments Pertaining To Real Estate Investment Trust Regulation

Last Updated: 15 January 2019
Article by Parth Rawal

The Real Estate Infrastructure Trust ("REIT") has been introduced by Securities and Exchange Board of India ("SEBI") in India since 2008, however, so far only two REITS have been registered in India and none of them have been listed on stock exchanges. Multiple attempts were made by government to amend the regulations, first enacted in 2014, to eliminate the drawbacks such as issues related to taxation, valuation and other miscellaneous issues. With the Joint Venture of Blackstone and Embassy Group1 filing its offer document in September 2018 for listing as country's first REIT, it is imperative to list out the effects of recent amendment on the present regulation governing Real Estate Infrastructure Trust. For the sake of brevity, the author only focuses on changes brought through recent amendment in REIT regulations.

The changes brought through Real Estate Investment Trust (amendment) Regulations, 20182

Controlling Interest - The definition of controlling interest has been amended such that - as per earlier regulation more than 50% of voting right or interest was necessary for acquiring controlling interest; however, now the word "more than" has been amended to include "not less than" which means any person holding 50% voting right or above will be deemed to hold controlling interest.

Holding Company - The definition of holding company has been amended to mean the company in which REIT holds fifty percent of equity share capital or interest and which in turn has made investment in other SPV, which ultimately holds the property.

Real Estate Assets - The definition of Real Estate Assets has been further elaborated to avoid confusion by highlighting that real estate assets include both leasehold and freehold property, whether held by REIT directly or through holding company or through special purpose vehicle. Thus, assets held by holding company will also be classified as Real Estate Assets which was missing in 2014 regulations.

Sponsor - The qualifications of sponsor has been amended by addition of new proviso which provides for additional qualification for becoming sponsor which is that entity must either have interest in assets or he must be holding units of REIT on post issue basis or his experience must be utilized by sponsor for meeting with eligibility criteria. In absence of either of these, person or entity will not be eligible to become a sponsor.

Investment Conditions & Distribution Policy - The Investment conditions and distribution policy as defined in Clause 18(1) has been amended through addition of proviso which makes it mandatory to have a dispute resolution mechanism in shareholder or partnership agreement in SPV for any investment to be made in properties through SPV.

Further for investment in properties by REIT through SPV, before the amendment the manager had to appoint board of director or governing board in consultation with trustee, however, this led to immense and unreasonable power being given to the manager and trustee without any checks being imposed on the same. The amended regulation has rectified this and the manager has to appoint the board of director or the trustee in proportion to their shareholding or interest in REIT or SPV.

As per the present regulation, the REIT Assets have to be invested in proportion of 4:1 where 80% of the assets have to be invested only in completed and rent generating properties as specified in Clause 4 of Section 18. The rest 20% has to be invested in accordance with Clause 5. The amendment now allows REIT to invest 20% of its asset in unlisted equity shares of companies which derive not less than 75% of their operating income from real estate activities. The minimum post paid up capital required for small cap and large cap company to be listed on stock exchange shall be Rs. 3 crores. Also due to fear of dilution of equity or compliance with the listing agreement which requires large number of disclosures to be made by company before listing on stock exchanges, many companies do not get listed on stock exchange. The amendment allows REIT to invest in these companies. Though this move is beneficial for these companies, however, there is no compliance with disclosure or corporate governance standards which make investment in these companies dubious for investor. The only safeguard against these investments is in form of trustee who is again not penalized for lack of caution or unsecured investment.

Amendment in Taxation Regime of REIT through Finance Bill, 20183

Capital Gain on Transfer of Units of REIT

The Finance Bill, 2018, has deleted the exemption available on transfer of long term capital asset, any units of business trust made on or after 1st April, 2018 under Section 10(38) of Income Tax Act. The income tax on long Term Capital Gain is now taxed through insertion of Section 112 which states that capital gain on units of business trust shall be taxable at rate of thirty percent.

The Short Term Capital Gain on the transfer of units of business trust on which Securities Transaction Tax (STT) is paid, is currently taxable at the rate of 15% as per Section 111A.

Moreover no tax breaks available under Sections 80C to 80U will be allowed for STCG or LTCG.

Rental Income from REIT

As per the provisions of RIET, the REIT shall distribute not less than 90% of the net distributable cash flows, subject to applicable laws, to its investors, at least on a half yearly basis.

As per Section 10(23FCA), any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust shall not be included while computing the total income of a previous year of any person.

Dividend Distribution by REIT

The Special purpose vehicle will be subject to dividend distribution tax at 30% as per Section 115 O and the dividends shall be exempt in hands Unit Holder.4


1. The Economic Times. (2018). Blackstone, Embassy file for Rs 5,000 crore REIT. [online] Available at: [Accessed 13 Dec. 2018].

2. (2018). SEBI | Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018. [online] Available at: (2018). SEBI | Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018. [online] Available at: [Accessed 19 Dec. 2018].



The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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