Stamp Duty for property transfer

Following representations received by the prime minister’s office (PMO) from both domestic and foreign private equity players in the past two months, Finance Minister Arun Jaitley is expected to consider the issues of scrapping stamp duty on transfer of properties by private individuals and firms to real estate investment trusts (Reits) and making dividend distribution tax (DDT) ‘pass through’ for Reits and investors in the trusts. Tax levies, including DDT and stamp duty issues, were flagged by top investment bankers and chief executives of companies like JP Morgan & Blackstone.

The real estate industry, equity investors and international trusts have represented to the government for granting “pass through status” for dividend payments by Reits. In effect, rental income from assets with the trusts would not be liable for tax as and when these assets or units are returned to the investors.

The demand for exemption from payment stamp duty and DDT was put forward after the government recently scrapped long-term capital gains tax on transfer of Reits units by their sponsors or investors. An exemption on payment of minimum alternate tax (MAT) when investors transfer shares to the Reit or on sale of Reits units was also granted by the Government recently.

Pending tax issues have been dissuading equity investors and real estate companies from making it big in real estate investment trusts (Reits) and infrastructure investment trusts (InvITs), rating agency CARE said in a note. In his last budget, finance minister Jaitley had given hope to real estate companies looking to list their rent-yielding real estate assets through Reits. Reports from various analysts suggest that the potential for Reits listing in India was about $ 20 billion since in May, the Union cabinet allowed foreign investors to take exposure in Reits to bring in capital and reduce the debt liability of domestic real estate companies.

As per estimates made by real estate firm Raheja Group, the top seven cities of India have more than 400 million square feet of operational office space; of which, over 150 million sq feet would be ready for Reits listing by April.

The largest realty developer, DLF has announced plans to start two Reits, with one exclusively for commercial office space. The company plans to monetize about 30 million sq feet office and retail space by the end of this financial year.

“The government may not wait till presentation of Budget in February next year, instead, it may shortly notify the exemption on payment of stamp duty on transfer of properties to Reits,” confirmed a PMO official. “Exempting Reits completely from payment of DDT might need further discussion,” he added.

Navi Mumbai Airport project

After the original rehabilitation component of the Navi Mumbai Airport project hit a roadblock, it has now been decided to handover 5 hectare of land in Panvel for rehabilitating the project affected people. The decision was taken after a major portion of the 57 hectares of land, meant to relocate project affected people (PAP), had been classified as no-development land, following a change in coastal area protection norms.

The Navi Mumbai Airport is one of the six projects that have been allowed to be constructed on CRZ-1 land under the 2011 notification. The state government has now asked that the exemption granted to the core airport land be extended to the 57-hectare land in Wadghar village meant to rehabilitate PAPs. The Ministry of Environment and Forest (MoEF) is yet to take a decision on freeing land from CRZ restrictions, despite the state government’s recent representations to the Prime Minister’s Office and the ministry.

Besides, the airport project rehabilitation plot, a total of 1,240 hectares of land in Navi Mumbai, has also been affected by CRZ-1 for the past two years, resulting in a potential loss of Rs 37,200 crore. Wadghar is one of the three villages in Navi Mumbai where people from the 10 villages affected by the airport project will be shifted to.  Notwithstanding the opposition of a few project-affected persons (PAPs) to the acquisition of land for the proposed Navi Mumbai International Airport in Panvel, Cidco has quietly started ground levelling work at the site. A source said, “We don’t want to wait for those who are adamant in spite being offered the best compensation.” The package offers PAPs 22.5% of the developed land, with an FSI of 2. Affected villagers will get pakka houses and their unemployed youth will be given vocational training. Joint MD of Cidco V Radha said Cidco has tied up with the ICICI Bank, TCS, NIFD and Taj catering, among others, for the training programme. Cidco has identified 3,500 unemployed youth. “We have been conducting their aptitude and psychological tests to know their interests, as per which they will be enrolled in state-subsidised courses. They will also get stipend. We are tracking their academic record and, as per the findings, changes will made in the programme,” she said.

Traditionally, in Navi Mumbai, the High Tide Line (HTL), which is the marker of CRZ-1, has been delineated on the basis of bunds and flapgates. Following the Coastal Regulations Zone (CRZ) notification of 2011, which classifies coastal land as CRZ-1 based on its salinity concentration, the Wadghar land has been rendered into a no-development plot. The land is one of the many that was acquired by the Navi Mumbai’s planning agency CIDCO.