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GS-III : Economic Issues Disinvestment

30 August, 2021
12 Min Read

NITI bats for tax breaks to achieve monetisation goal

To make the National Monetisation Pipeline (NMP) a success, the government should give Income Tax breaks to attract retail investors into instruments such as Infrastructure Investment Trusts (InvITs), the NITI Aayog has recommended.
The Centre’s think tank driving the NMP, estimated to raise almost ?6 lakh crore for the exchequer over four years, has also called for bringing such trusts within the ambit of the Insolvency and Bankruptcy Code (IBC) to provide greater comfort to investors.
Bringing in policy and regulatory changes to scale up monetisation instruments such as InvITs and Real Estate Investment Trusts (REITs) and expand their investor base have been identified as a critical element for the NMP. The government plans to use the InvIT and REIT route to monetise public assets such as highways, gas pipelines, railway tracks and power transmission lines.
“More tax-efficient and user-friendly mechanisms like allowing tax benefits in InvITs as eligible security to invest under Section 54EC of the Income Tax Act, 1961, are important starting points for initiating retail participation in the instruments,” the Aayog said in its blueprint, indicating that further taxation-related tweaks may be needed along the way.
Section 54EC allows taxpayers to offset long-term capital gains from transactions in immoveable properties through investments in bonds issued by some government-backed infrastructure firms. “Though this will entail a cost in the form of loss of revenue for exchequer, the long-term benefits may outweigh the cost as linking investments in specified bonds with the capital gains exemption had proved to be a success in the past,” Amit Singhania, partner at Shardul Amarchand Mangaldas & Co., told The Hindu, adding that this will encourage retail investor participation in InvITs.
While InvIT structures have been used in India since 2014, the Aayog pointed out that such trusts are not considered a ‘legal person’ and cannot be brought under IBC proceedings, deterring lenders from participating. “Since the trusts are not considered as ‘legal person’ under the extant regulations, the IBC regulations are not applicable for InvIT loans,” the Aayog said.

Source: TH

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