Amortisation of SPV debt” by REITs/INVITs will be taxed.

 Key amendment include the changes to the way in which the distribution component “Amortisation of SPV debt” by REITs/INVITs will be taxed. At a high level, the changes proposed are extremely friendly.

Here is the quick snapshot of the amendment specific to business trusts:

Initial proposal as per Budget 2023 :

Per Budget 2023, the amount distributed as “amortisation of SPV debt” by the business trust to its investors was proposed to be taxed in the hands of the investor as income from other sources (residuary head of income). The result was that the tax arising on this component of distribution for investors would be as high as MMR Tax. Tax treaty benefits for non-resident investors was also not available.


Enacted law:

We have represented and explained to the Government that characterizing capital repayments as income was fallacious. The Government agreed and as per the law enacted, there shall be no tax on the amortisation of SPV debt till such time that the aggregate amount of Amortisation of SPV debt do not exceed the issue price. Instead, such amounts will be reduced from the investors’ cost of the units. When the investor eventually sells the units, they will pay capital gains tax on the difference between the sale consideration and the adjusted cost of the units (ie, original cost (A) - aggregate amount of amortisation of debt (B) received by the investor till the date of sale). If the aggregate amount of amortisation of SPV debt exceeds the original issue price of the units, only the excess will now be taxed as income from other source as the Maximum marginal tax rate.