The government is actively considering offering tax incentives for investments in infrastructure investment trusts (InvITs), making them more attractive for both retail and foreign institutional investors in an earnest attempt to boost funding of mega infrastructure projects in line with the PM Gati Shakti National Master Plan.

One of the plans is to modify the capital gains regime including the rates.

Worth mentioning here is that InvITs are collective investment vehicles like a mutual fund, which facilitate the direct investment of money from individual and institutional investors in infrastructure projects to earn a small part of the income as a return.

According to the existing taxation rules, an investor in InvITs has to shell out short-term capital gains (STCG) tax of 15 per cent on profits made from the sale of shares or units within three years of purchasing them. For units sold after three years, profit is subject to long-term capital gains (LTCG) tax of 10 per cent, if gains surpass Rs 1 lakh. 

“Infrastructure projects will continue to remain an area of focus for 3-4 years. Infrastructure investment trusts have generated a lot of interest,” a senior finance ministry official told ET, mentioning that there are talks on making them more attractive by adding some tax sops.

Several infrastructure players and foreign investors have put forth their views in this regard.

The financial daily quoted another official as saying that one of the main suggestions was to trim both long-term and short-term capital gains tax in order to rope in large institutional players for a longer period because these projects take longer periods for completion.

He went on add that the quantum of tax sops is still being assessed and a final decision on the plan will be taken shortly.

InvITs are fast becoming a preferred route for private equity investors to hold operating infrastructure assets and for infrastructure developers to monetize their investments in these projects. 

In 2020-21, Rs 40,432 crore was raised by InvITs and Rs 14,300 crore by real estate investment trusts (REITs), according to data released by the Securities and Exchange Board of India (Sebi) in July last year. 

The government believes this investment instrument has more potential, particularly for highway and power projects.