Budget 2023: Impact on InvITs

  • Distributions out of repayment of debt principal could now be taxed as ‘other income’ – at odds with global standards
  • Distributions out of debt repayments through redemption of units not treated as ‘income’, but reduce cost of acquisition – InvIT / REIT Regulations do not permit redemption of units…

    Private Funds: SEBI introduces investor diligence requirements for AIFs

    • SEBI has cast new investor diligence obligations on AIF managers, which extends to underlying investors
    • As per the new rule, the manager of an AIF is not permitted to on-board new investors or draw down capital from existing investors unless the diligence conditions have been complied with…

      EduInfra – Emergence of a new asset class

      • EduInfra offers a promising 10 – 11% entry cap rate for annuity investors with rental escalations in the region of 3
        – 5%

      • Infrastructure classification allows for tax optimal exit through InvITs
      • Seller awareness needed – operators slowly moving towards asset light models; depth, but potential…

        Investor or developer? Real estate regulator (RERA) classifies real estate fund as a promoter

        • The term ‘causes to construct’ in the definition of ‘promoter’ under RERA has been interpreted to include private funds exercising rights typical to such investments

        • Protective rights of investors have been interpreted as being secondary to the rights of the homebuyers – in a conflict, the latter should be protected, notwithstanding inter-se contractual relationship between developer and fund…

          What’s Holding Back Indian Fund Managers From Raising Global Capital?

          • Indian fund managers, thus far restricted, may now be able to setup India-focussed offshore funds
          • Is investment by resident individuals in offshore funds now restricted, even under LRS? Not quite – we address the ambiguity
          • Will GIFT now emerge as the most favoured jurisdiction for setup of India-focussed funds?…

            GP-Led Secondaries in India – Considerations and Challenges

            • GP-led secondaries have become fairly popular globally given that they solve for the liquidity concerns among some LPs whilst allowing the GP to capture more upside from an investment.

            • In a GP- led secondary deal, it is important to find a pricing that works for the exiting investors but keeps the acquisition attractive for the incoming investors…

              Private Credit: Interest on NCDs recharacterized as dividends 

              • Tax authorities recharacterized interest income on NCDs as dividends
              • Interest recharacterization has not taken place under GAAR
              • Investors can prevent such mischaracterization by demonstrating the nature of the underlying instrument, periodicity of payments, maturity date, management rights,

                Listed or Unlisted InvITs – Which way to go?

                • Tracking evolution of InvITs – resurgence and success
                • Debate between private listed and unlisted InvITs – which way to go?
                • Unlisted InvITs remain attractive for investors seeking tax optimal returns and deregulated landscape…

                  Private Credit: Supreme Court holds that ownership of pledged shares remains with pledgor despite transfer to pledgee 

                  • SC overrules a series of prior rulings which held that pledgee becomes the owner of pledged shares upon invocation.
                  • SC holds that even though pledgee is recorded as beneficial owner upon invocation, pledgee only receives ‘special rights’ and not ‘ownership’ over pledged shares.
                  • The term ‘actual sale’ means sale to a third party…

                    Denial of tax treaty benefits: Blueprinting defence strategies for PE funds – A tax litigation perspective

                    • Revenue has issued reassessment orders to several global PE/VC funds denying
                      tax treaty benefits to grandfathered investments alleging treaty shopping through Mauritius and Singapore between AY 2013-14 and 2015-16

                    • Substantial tax, interest, and penalty has been levied invoking judicial anti-avoidance principles based on a supposed lack of commercial substance in these jurisdictions…


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