Government Aligns REITs and InvITs with Equity Shares for Long-Term Capital Gain Tax

The government has equated units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) with listed equity shares for calculating long-term capital gain tax. The holding period for determining long-term capital gains has been reduced from 36 months to 12 months, enhancing investment flexibility and liquidity.

The government on Tuesday aligned units of listed business trusts — REITs and InvITs — with listed equity shares for the purpose of calculating long-term capital gain tax. This decision aims to foster a more agile investment environment.

According to the Union Budget document, the holding period for determining long-term capital gains for business trusts has been reduced from 36 months to 12 months.

Real estate Investment Trusts (REITs) and infrastructure investment trusts (InvITs) are relatively new to the Indian market but are globally known for their lucrative returns and capital appreciation. A REIT comprises a portfolio of commercial real estate assets that are mostly leased out, while InvITs consist of infrastructure assets like highways.

The Indian REITs Association, formed by four listed REITs, welcomed the reduction in the holding period, noting it addresses a long-standing industry request and enhances liquidity in Indian REITs, thereby making them more effective investment instruments. Previously, investors needed to hold units for 36 months to qualify for the long-term capital gains tax rate. This extended holding period often served as a barrier to investment flexibility and liquidity, particularly in the real estate sector.

Manish Satnaliwala, CEO of National Infrastructure Trust, stated that this move demonstrates the government's focus and commitment towards strengthening the infrastructure sector, which is crucial for long-term economic growth and development.

(With inputs from agencies.)