Dividend Distribution Tax (DDT) is seen as a major hurdle in the progression of Real Estate Investment Trusts (REITs) in the country. Since its introduction in 2015, not even a single REIT has been listed till date.
Introduced in 2015, Real Estate Investment Trusts (REITs) was conceived as a way to open the Indian real estate market to smaller entities. As raising funds is always a tough challenge for developers, REITs was meant to serve as a simple getaway. The concept was applauded by one and all in the industry.
Modelled like mutual funds, investors can easily invest in commercial and residential properties through a common pool, without themselves stepping into the market to directly purchase realty assets like housing or commercial units. Already a success in countries like Australia, Singapore, Hong Kong and US, it could have brought investment in large sums. While a year might be a very short span to determine the success or failure of a policy, not even one REIT being listed makes it a crucial concern. One of the major reasons that has prevented it from materialising is the Dividend Distribution Tax (DDT) and industry players are demanding it to be removed in the upcoming Union Budget 2016-17.
Indian Government levies Dividend Distribution Tax on companies according to the dividend paid to a company's investors. Under Income Tax Act (ITA), 1961, tax to the tune of 15 per cent is levied on the dividend declared as distribution tax. It is paid out of the profits of the company declaring the dividend.
The industry players however believe that this is too high and is making REITs unattractive for investors. Here is what various stakeholders have to say: