The government is reviewing the negative implications of the scrapping of the Dividend Distribution Tax, announced in the Union Budget 2020-21, for investors in real estate investment trusts and infrastructure investment trusts, also known as REITs and InvITs.

Dividend income was tax-free in the hands of REIT and InvIT investors so far, making it attractive for high-networth investors to put money in these trusts. Now, the dividend income will be rendered taxable in the hands of the investors.

“(REITs and InvITs) have been successful attempts at getting investments for real estate and other infrastructure,” Finance Minister Nirmala Sitharaman said in a meeting with the CII National Council on late Tuesday evening. “We don’t intend to tax or burden InvITs,” she clarified in response to concerns raised by CII’s taxation committee chairman Rajeev Memani. “These are investors coming in for 15-20 years and a lot of those are domestic investors who are trying to build the retail InvITs market,” Mr. Memani, chairman of EY India pointed out, urging the government to retain the status quo as it would ensure a predictable and stable tax treatment for these instruments.

Industry officials have sought a meeting with Finance Ministry mandarins to impress upon them that the resultant double taxation burden could hit plans to raise around $100 billion in funds through InvITs and REITs. Moreover, existing investors in such trusts would also be liable to pay tax from the coming year.

This would detract from the government’s focus on spurring real estate and infrastructure projects to rev up the economy, according to the group of industry executives who have written to the Finance Ministry seeking a roll-back of this move.

Revenue Secretary Ajay Bhushan Pandey said the government had received some representations on the taxability of REITs and InvITs on Monday. “So we are looking at that and if there are some anomalies, we will see how to address them,” he said.

Sources said senior Finance Ministry officials, including representatives from the Department of Economic Affairs, may also discuss the matter with industry executives over the Finance Minister’s three-day tour of Mumbai, Chennai and Kolkata starting this Friday.Ms. Sitharaman said she was visiting the three cities to explain the provisions of the Budget and hear industry feedback on the same.

“The government’s REITs and InvITs policy framed with a great deal of detail had been very good and has led to $4-5 billion coming into the country in the last 12 months and is estimated to attract about ₹2 lakh crore more,” said Mr. Memani, stressing that income was taxed at only one level under InvITs till now.

While there was a special carve-out from DDT provisions for REITs and InvITs, the Budget provisions imply that the special purpose vehicle will pay tax on its income; dividends distributed by the SPV will not attract DDT, but the unit holders would be liable to pay tax on them (resulting in a second level of tax), industry executives have flagged.