budget 2022: Tax sops likely for InvITs to woo FII and retail investors

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The government is mulling tax incentives for investments in infrastructure investment trusts (InvITs) to make them more attractive for both retail and foreign institutional investors, and to give a leg up to funding of big-ticket infra projects in line with the ‘Gatishakti’ plan.

One of the proposals is to tweak the capital gains regime including the rates.

InvITs are special trusts created to facilitate participation of individual and institutional investors in infrastructure projects. In return, investors can earn a small portion of the income.

However, as per the existing taxation norm, an investor in InvITs has to pay short-term capital gains (STCG) tax of 15% on profits made on sale of units within three years of purchasing them. For units sold after three years, profit is subject to long-term capital gains (LTCG) tax of 10%, if gains exceed ₹1 lakh.

“Infrastructure projects will continue to remain an area of focus for 3-4 years. Infrastructure investment trusts have generated a lot of interest,” a senior finance ministry official said, adding that there are discussions on making them more attractive by adding some tax incentives.

Suggestions in this regard have come from many infrastructure players and foreign investors.

Another official said during the meeting of international fund managers with Prime Minister Narendra Modi, one of the prominent suggestions was to reduce both long term and short-term capital gains tax so that many large institutional players can participate for a longer period given the fact that these projects take longer periods for completion.

The official added that the quantum of tax incentive was still being examined and a final call on the proposal will be taken shortly

InvITs have emerged as a preferred route for private equity investors to hold operating infrastructure assets and for infrastructure developers to monetize their investments in these projects.

In 2020-21, ₹40,432 crore was raised by InvITs and ₹14,300 crore by real estate investment trusts (REITs), according to Sebi data.

The government is of the view that this vehicle has more potential, especially for highway and power projects.

This move is expected to channel the much-needed liquidity for infrastructure projects with better credit quality and at the same time help improve governance and accountability in these projects.

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