New Delhi, Dec 21: New issuances of Infrastructure Investment Trusts (InvITs) have dried down
after the public issues of two InvITs at the start of this financial year.
According to credit rating agency ICRA, this has happened as
developers have deferred plans and are in wait-and-watch mode which can be
attributed to multiple factors with the key ones being subdued investors’
interest, and taxation-related anomalies.
Also the fact that the market performance of the two listed InvITs has so far been subdued with both of them trading below their initial issue price has not escaped investors’ attention.
Shubham Jain, Vice-President and Sector-Head, Corporate Ratings, ICRA, said, “After the initial experience, investors are bound to expect higher yield for new InvIT issuances. While both the listed InvITs are targeting an annual distribution yield of 11-12 per cent, the distribution yield in case of InvITs also includes Return of Capital (principal, reduction of capital), in addition to the Return on Capital (in the form of interest/dividend).”
According to ICRA. another issue which is adding to the dilemma of the prospective InvITs issuers is the clarity on taxation related issues post the introduction of sections 50CA, 56(2)(x), and 11UA(c)(1) in the Income-Tax Act.
These changes govern the taxation for transaction below the fair market value (FMV) and methodology for determining the FMV for unquoted shares. With these amendments, the FMV will be used instead of book value for taxation purposes. As most of the infrastructure SPVs are unlisted, and the book value can be quite different from the FMV, this can result in higher incidence of taxes in some cases.
“While a majority of the taxation-related issues for InvITs are resolved, some ambiguities - specifically sections 50CA, and 56(2)(x) of the Income-Tax Act – remain, which raise an issue. Due to this, in some cases, there can be double taxation i.e. on both the sponsor and the InvIT in case the transfer value is lower than the derived FMV. To avoid this, while transactions can happen above the fair market value, this in turn would adversely impact InvIT’s yield and consequently investors’ interest.” Mr Jain added. UNI
Also the fact that the market performance of the two listed InvITs has so far been subdued with both of them trading below their initial issue price has not escaped investors’ attention.
Shubham Jain, Vice-President and Sector-Head, Corporate Ratings, ICRA, said, “After the initial experience, investors are bound to expect higher yield for new InvIT issuances. While both the listed InvITs are targeting an annual distribution yield of 11-12 per cent, the distribution yield in case of InvITs also includes Return of Capital (principal, reduction of capital), in addition to the Return on Capital (in the form of interest/dividend).”
According to ICRA. another issue which is adding to the dilemma of the prospective InvITs issuers is the clarity on taxation related issues post the introduction of sections 50CA, 56(2)(x), and 11UA(c)(1) in the Income-Tax Act.
These changes govern the taxation for transaction below the fair market value (FMV) and methodology for determining the FMV for unquoted shares. With these amendments, the FMV will be used instead of book value for taxation purposes. As most of the infrastructure SPVs are unlisted, and the book value can be quite different from the FMV, this can result in higher incidence of taxes in some cases.
“While a majority of the taxation-related issues for InvITs are resolved, some ambiguities - specifically sections 50CA, and 56(2)(x) of the Income-Tax Act – remain, which raise an issue. Due to this, in some cases, there can be double taxation i.e. on both the sponsor and the InvIT in case the transfer value is lower than the derived FMV. To avoid this, while transactions can happen above the fair market value, this in turn would adversely impact InvIT’s yield and consequently investors’ interest.” Mr Jain added. UNI
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