14/01/22

INDIA: Govt may extend tax benefit to global funds.

As published on livemint.com, Friday 14 January, 2022.

In a major infrastructure push, the government may extend tax benefits to global private funds to invest in affordable housing projects in India, according to two people who did not want to be identified.

The Union budget for FY23 is likely to announce exemption under Section 10(23FE) of the Income Tax (I-T)Act to other categories of non-resident investors, including real estate funds, focusing on affordable housing. The move is being contemplated to increase the flow of capital for affordable housing projects.

Queries emailed to the ministries of finance, and housing and urban affairs, remained unanswered till press time.

Section 10(23FE) of the I-T Act offers exemptions to sovereign wealth funds and pension funds on income from dividend, interest, and long-term capital gains arising from investment in infrastructure projects from 1 April 2020 to 3 March 2024 subject to certain conditions. The exemptions can be availed after a minimum lock-in period of three years.

Among the sovereign funds in India, Abu Dhabi Investment Authority is an anchor investor ($900mn) to the $1.1 billion HDFC affordable housing fund, while BAE Systems Pension Funds Investment Management Ltd invested $130 million in Investcorp affordable housing fund. According to industry estimates, many funds have tied-up with developers to invest ₹3,500 crore.

Vivek Jalan, partner, Tax Connect Advisory Services, said seven to eight sovereign funds have availed the benefits of the exemptions. Jalan said more investments need to come in to meet the growing demand for affordable housing. “The government has to get more funds, and it cannot be done by only sovereign funds; therefore, private players will have to come in."

Anand Moorthy, business head, data intelligence and asset management, PropsAMC, said India will require 25 million affordable houses over 10 years with investments of around $5 trillion. “There is a huge demand for affordable housing but the supply of infrastructure might not be fulfilling for the next 2-3 years." He said more sovereign wealth funds, pension funds and other private funds must contribute to raise the required capital.

Global funds, including sovereign funds, will get far higher returns from their investments in Indian real estate compared to other countries, he added.

The Centre’s push for infrastructure and affordable housing is likely to continue in the budget for FY23 with a few other measures. The additional interest deduction of ₹1.5 lakh on affordable housing loans is also expected to be extended by a year till March 2023. Besides, there is growing demand for amendment to the definition of affordable housing that would benefit ore and more home buyers and investors. Currently, housing units worth up to ₹45 lakh come under the ambit of affordable housing.

Moorthy of PropsAMC said affordable property should be defined as those under 500 sq ft of area and the price cap should also be enhanced to ₹50-60 lakh.