Govt looks to make InvITs more popular for investors. Here’s all you need to know

The government wants to make infrastructure investment trusts, or InvITs, more attractive to retail and foreign institutional investors, and is mulling tax sops to get more people and fund houses make these instruments a part of their portfolio. 

One of the proposals that the government is considering is to tweak the capital gains regime, including the rate at which returns on these investments are taxed, according to a report by The Economic Times.

But why does the government want to make InvITs more popular?

The government wants more money to flow toward the country’s infrastructure sector so that big projects, especially those under its flagship ‘Gatishakti’ plan, can get funded. 

Government officials say that infrastructure projects will continue to remain in focus for the next several years, and therefore, InvITs could become a popular medium of channeling investments into these projects.  

Ok, but just for the benefit of no-nothing investors, what are InvITs?

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.

So, what is the current taxation norm on returns from investments into these InvITs?

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 Rs 1 lakh.

How much investment is the government hoping will come into the infrastructure sector overall?

The government wants to attract investment of up to Rs 111 trillion into the infrastructure space, by FY2025. 

What do foreign investors want the government to do?

Citing an unnamed government official, the news report said that during a 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.

How much money has been raised via InvITs so far?

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