The Pillars of Startup Success: Key Lessons to Learn 

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The Pillars of Startup Success: Key Lessons to Learn 

Starting a startup is akin to embarking on an adventurous journey into the unknown. While the road may be fraught with challenges, the success stories of renowned startups offer invaluable insights and lessons for aspiring entrepreneurs. Let’s dig into some of the foundational pillars of startup success: 

1. Focus on Problem-Solving 

Successful startups, such as Airbnb and Uber, identified existing problems and devised innovative solutions to address them. Airbnb’s journey began when its founders, rented out air mattresses in their living room to attendees of a design conference in San Francisco, thus realizing the potential for a peer-to-peer lodging marketplace. Flipkart recognized the lack of accessible e-commerce platforms in India and built a robust online marketplace, transforming the retail landscape. Similarly, Ola leveraged the ubiquity of smartphones to provide convenient and affordable ride-hailing services across the country, addressing the challenges of urban transportation. By keenly observing pain points in the Indian market, these companies created products or services that catered directly to consumers’ needs. 

2. Team Building 

Google‘s founders, Larry Page and Sergey Brin, prioritized hiring exceptionally talented individuals and creating a culture of innovation. Google’s renowned “20% time” policy, allowing employees to dedicate a portion of their workweek to passion projects, has led to the development of groundbreaking products such as Gmail and Google News. A strong team with shared values and goals forms the bedrock of a successful startup. Investing in team-building activities, fostering open communication, and nurturing a positive work environment are essential for long-term success. 

3. Adaptability 

The evolution of Netflix from a DVD rental service to a global streaming powerhouse underscores the importance of adaptability in the fast-paced business landscape. Likely, CureFit demonstrated adaptability by offering online fitness classes and personalized workout plans during the COVID-19 pandemic when traditional gym facilities were closed. This pivot allowed CureFit to continue serving its customers and adapt to the changing circumstances Startups must remain agile and responsive to changing market dynamics, consumer preferences, and technological advancements. 

In conclusion, the journey of startup success is paved with various challenges and uncertainties. However, by prioritizing problem-solving, fostering strong team dynamics, and embracing adaptability, entrepreneurs can navigate the tumultuous waters of entrepreneurship with confidence and resilience. 

Understanding the legalities of GST on Petroleum Products

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Understanding the legalities of GST on Petroleum Products

In the complicated web of India’s taxation system, the treatment of petroleum products under the Goods and Services Tax (GST) regime remains a complex and highly debated subject. As critical drivers of the economy, petroleum products such as Crude Oil, Petrol, Diesel, and Natural Gas play a significant role in revenue generation and government policy.

  • Exclusion from GST

Under the current Indian tax regime, petroleum products are kept outside the purview of GST. Instead, they are subject to specific excise duties levied by the central government and state-level Value Added Tax (VAT). This exclusion stems from concerns about revenue loss for both the central and state governments, as petroleum products contribute substantially to tax revenues.

The exclusion of petroleum products from GST has direct implications for consumers and businesses alike. While consumers may not benefit from the input tax credit mechanism offered by GST, businesses in petroleum industry face administrative challenges in managing multiple taxation systems, leading to increased compliance costs and pricing complexities.

  • Challenges and Criticisms:

In the absence of GST, state governments levy VAT on petroleum products, which varies from state to state and contributes significantly to state revenues. Additionally, the central government imposes excise duties on petroleum products, which serve as a crucial source of revenue for funding various developmental projects and government initiatives.

The exclusion of petroleum products from GST has drawn criticism from various quarters. Critics argue that the fragmented tax structure leads to cascading taxes, increases administrative burden, and hampers the efficiency of the economy. Moreover, the volatility of crude oil prices in the global market can exacerbate the impact on consumers and businesses.

  • Calls for Reform and Inclusion:

In recent years, there have been calls for reforming India’s taxation system to bring petroleum products under the ambit of GST. Proponents argue that integrating petroleum products into the GST framework would streamline taxation, enhance transparency, and mitigate price fluctuations for consumers. However, concerns about revenue implications and the autonomy of state governments remain significant hurdles to such reforms.

  • Potential Path Forward:

While the debate on the inclusion of petroleum products in GST continues, policymakers are exploring alternative mechanisms to address the challenges posed by the current tax regime. This includes discussions on revisiting excise duties and VAT rates, implementing measures to stabilize prices, and enhancing coordination between the central and state governments.

The Patanjali Saga: Triumph to Troubles

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The Patanjali Saga: Triumph to Troubles

INTRODUCTION 

Patanjali, once hailed as a giant in the ayurvedic industry, surged into prominence with its wide range of FMCG products. Patanjali’s entry into the FMCG market was nothing short of revolutionary. Founded by Baba Ramdev and Acharya Balkrishna, the company leveraged its strong focus on Ayurvedic Principles to create a diverse range of products spanning from personal care to food items. Its competitive pricing and claims of natural ingredients shook the market, challenging established players like Hindustan Unilever Limited (HUL), Nestle and others. However, recent events have cast a shadow over Patanjali’s success story. 

SCRUTINY ON PATANJALI AND BABA RAMDEV

As Patanjali’s advertisements became more widespread, they also attracted scrutiny from regulatory bodies and consumer organizations. In 2016, the Advertising Standards Council of India (ASCI) pulled up Patanjali for running misleading advertisements. 

Ramdev is currently facing action from the Supreme Court. This is due to the publication of objectionable and misleading advertisements about their Ayurvedic products. Despite giving an undertaking to the Supreme Court in November last year to halt these advertisements, they continued to do so, leading to the court’s dissatisfaction with their actions.  

President of the Indian Medical Association (IMA), Dr. R V Asokan, has voiced strong criticism against Baba Ramdev, condemning his claims of being able to cure COVID-19 while disparaging modern medicine as “stupid and bankrupt.” Asokan expressed deep concern that Ramdev’s influential status could mislead people, which he found unfortunate. 

In May 2022, Patanjali received a Rs.1000 crore defamation notice from the Indian Medical Association (IMA), which termed Ramdev’s remark as a “criminal act” under IPC 499 and demanded an apology from Baba Ramdev. Following this, in August 2022, the IMA filed a petition in the Supreme Court regarding the disparaging advertisement. The Supreme Court held the first hearing on the matter in November 2023, during which it warned Patanjali against using terms like “permanent relief”. 

IS THE APOLOGY BIG ENOUGH? 

Ramdev has said his company has taken out newspaper ads apologizing to the public. But, On April 23, the Supreme Court questioned Patanjali Ayurved, about the scale of its published apology in newspapers compared to its typical expensive “front page” advertisements promoting herbal drugs.  

Supreme Court said the apology was published in 67 newspapers. “Tens of lakhs” were spent to convey their regret for misleading the public. “But is your apology the same size as the advertisements you normally issue in newspapers? Did it not cost you ‘tens of lakhs’ to put front-page advertisements?” 

On April 15, the Uttarakhand State Licensing Authority suspended the 14 manufacturing permits of Ramdev’s companies, including traditional medicines for asthma, bronchitis, and diabetes, among others. The suspension was immediate. However, on April 30, the court was dissatisfied with the inaction of the said authority in the misleading advertisement case, questioning whether they acted lawfully and urging honesty for sympathy and compassion. 

GST- ANOTHER BLOW FOR PATANJALI

Also, Patanjali Foods has received a show cause notice from the Directorate General of GST Intelligence, Chandigarh, for allegedly claiming Rs. 27.5 crore in undue input tax credit. 

This notice, issued under the CGST Act, highlights a potential discrepancy in the company’s tax filings that could result in penalties. 

Patanjali’s journey reflects both triumphs and tribulations in the competitive FMCG landscape. While its initial success disrupted the market with Ayurvedic principles and competitive pricing, recent controversies and regulatory scrutiny have challenged its standing.

Inheritance Tax: A solution to ensure equality or risk to hard earned savings?

Madhav Chasmawala
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Inheritance Tax: A solution to ensure equality or risk to hard earned savings?

Inheritance Tax, often dubbed as the “Death Tax,” is a levy imposed on the transfer of assets from a deceased individual to their heirs or beneficiaries. The Inheritance Tax serves two main purposes. First, it helps the government generate revenue to support public finances and expenditures. Second, by taxing the transfer of large estates, it seeks to address the distribution of wealth and may reduce wealth disparity in society. 

The concept of an Inheritance Tax is, however, not new to India. Such a tax, known as estate duty or “death tax” in some countries, was very much prevalent in India around four decades ago before it was abolished in 1985. Before its abolishment, a high “estate duty” of up to 85% for properties over Rs. 20 Lakhs was required to be paid by the executors of the deceased’s estate under the Estate Duty Act of 1953. It was abolished due to concerns about its effectiveness in generating revenue and double taxation. In the following sections, we’ll explore the arguments for and against Inheritance Tax implementation, as well as its potential implications for individuals and families in India. 

Arguments For: 

  1. Promoting Wealth Redistribution: Inheritance Tax promotes economic equity by taxing large estates and redistributing proceeds to fund social welfare programs, thereby addressing wealth inequality. 
  1. Revenue Generation for Public Services: It serves as a crucial revenue source for the government, financing public services like healthcare and education, contributing to economic stability and growth. 

Arguments Against: 

  1. Double Taxation and Burden on Families: Inheritance Tax faces criticism for potentially imposing double taxation, burdening families with financial strain amidst emotional challenges. 
  1. Potential Negative Impact on Economic Growth: Opponents argue that Inheritance Tax may hinder economic growth by discouraging savings and investment, particularly impacting small businesses reliant on intergenerational capital. 
  1. Administrative Complexity and Compliance Costs: The administrative complexity and compliance costs associated with Inheritance Tax implementation could disproportionately affect middle-income families and small estates, potentially outweighing any revenue gains. 

Currently there is no Inheritance Tax system in India. Countries such as the United States, the United Kingdom, Japan, France, and Finland have already imposed Inheritance Tax policies, reflecting varying ideologies. In U.S.A., the Inheritance Tax rate is as high as 55%. In contrast, India finds itself amidst a political debate. With the ruling party expressing its disagreement and the opposing party advocating for its implementation, the topic has gained prominence, especially during the time of general elections.  

Ultimately, the path forward in India will require thoughtful consideration of its potential impact on revenue generation, wealth distribution, economic growth, and administrative feasibility 

How to Create a Successful Partnership Agreement for Your Startup

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How to Create a Successful Partnership Agreement for Your Startup

Starting a prosperous business is rarely a solo endeavour – most flourishing startups are built on strong partnerships. Whether you’re joining forces with a co-founder, bringing on an investor, or forming a strategic alliance, having a well-crafted partnership agreement is crucial for setting your startup up for long-term success.

As an entrepreneur in India, navigating the intricacies of partnership agreements can be daunting, but it’s an essential step that shouldn’t be overlooked. In this post, we’ll guide you through the key elements to consider when crafting a partnership agreement tailored for the Indian startup ecosystem.

Defining Ownership and Equity Split

One of the primary purposes of a partnership agreement is to establish the ownership structure and equity distribution among the partners. This is a crucial step, as it sets the foundation for decision-making, profit-sharing, and various other aspects of the business.

When determining the equity split, it’s important to consider factors such as each partner’s financial investment, their respective roles and responsibilities, and the value they bring to the table. It’s also wise to leave room for future adjustments, such as vesting schedules or performance-based equity allocations.

Outlining Roles and Responsibilities

A well-crafted partnership agreement should clearly define the roles and responsibilities of each partner. This helps to avoid confusion, conflicts, and misunderstandings down the line. Clearly delineate the decision-making authority, management responsibilities, and key deliverables for each partner.

In the Indian startup landscape, it’s particularly important to address issues such as conflict resolution, non-compete clauses, and exit strategies within the partnership agreement. This helps to ensure that the partnership remains harmonious and that the business can continue to flourish even if one partner decides to leave.

Addressing Funding and Finances

The partnership agreement should also cover the financial aspects of the business, including initial and future funding, revenue sharing, and profit distribution. Outline the capital contributions from each partner, as well as any planned fundraising activities or investment rounds.

Additionally, establish clear guidelines for financial reporting, accounting practices, and the handling of business expenses. This ensures transparency and helps to prevent disputes over financial matters.

Defining Decision-Making and Dispute Resolution

The partnership agreement should outline the decision-making process, including the voting rights and decision-making authority of each partner. This is particularly important for startups with multiple co-founders or investors, as it helps to prevent deadlocks and ensures that the business can move forward efficiently.

Furthermore, the agreement should include a clear dispute resolution mechanism, such as mediation or arbitration, to help resolve any conflicts that may arise between the partners. This helps to maintain the stability and continuity of the business, even in the face of disagreements.

Conclusion

Creating a comprehensive partnership agreement is crucial for startups in India. By addressing key elements like ownership, roles, finances, and decision-making, you can establish a strong foundation for your partnership. A well-crafted agreement is a strategic tool to traverse the challenges of the Indian startup ecosystem. Remember, taking the time to carefully document your partnership terms will support the long-term growth and sustainability of your business. At itatorders.in, our team of legal and business experts can work with you to craft a customized partnership agreement personalized to your startup’s unique needs. Contact us today to learn how we can help you build a thriving partnership for your startup.

GST and E-invoicing: Transforming Business Compliance in India

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GST and E-invoicing: Transforming Business Compliance in India

The Goods and Services Tax (GST) regime has been a game-changer for the Indian economy, simplifying the indirect tax structure and promoting ease of doing business. However, the true benefits of GST can only be realized through efficient compliance and embracing technological advancements like e-invoicing.

E-invoicing is a vital component of the GST framework, aimed at reducing tax evasion, enhancing transparency, and streamlining the entire invoicing process. By mandating the generation of e-invoices for businesses with an annual turnover exceeding a specified threshold, the government has taken a significant step towards digitizing the supply chain and fostering a seamless flow of information.

The implementation of e-invoicing has brought about numerous advantages for businesses across sectors. Firstly, it eliminates the need for manual data entry, minimizing errors and inconsistencies that often plague traditional invoicing methods. This not only saves time and resources but also ensures accurate reporting and timely tax compliance.


Furthermore, e-invoicing promotes real-time data exchange between businesses and the GST Network (GSTN), enabling seamless reconciliation and reducing the risk of mismatches. This transparency enhances trust among trading partners and facilitates smoother business transactions, ultimately contributing to a more efficient and competitive ecosystem.


Another significant benefit of e-invoicing is its role in combating tax evasion. By capturing invoicing data at the source, the system makes it challenging for businesses to manipulate or conceal transactions. This not only safeguards government revenue but also creates a level playing field for compliant businesses, promoting fair competition and fostering a culture of accountability.

Moreover, e-invoicing aligns with the government’s broader digital transformation agenda, positioning India as a technologically advanced and business-friendly nation. By embracing this technological revolution, businesses can future-proof their operations, streamline processes, and stay ahead of the curve in an increasingly digitized global marketplace.


However, the success of e-invoicing hinges on effective implementation and adoption by businesses across sectors. Adequate training, awareness campaigns, and support from tax professionals and consultants are crucial to ensure a smooth transition and maximize the benefits of this transformative initiative.


At RSA Consultants, a team of experienced chartered accountants and professionals, we have been at the forefront of guiding businesses through the intricacies of GST and e-invoicing compliance.

Our expertise lies in providing comprehensive advisory services, corporate structuring solutions, internal audits, litigation support, and startup mentoring, ensuring that our clients navigate the complexities of the tax landscape with ease.


As India continues its journey towards a more transparent and digitized business environment, initiatives like GST and e-invoicing will play a pivotal role in fostering economic growth, enhancing tax compliance, and positioning the nation as a preferred destination for global investments.

Empowering Insolvency Resolutions: NCLAT’s Landmark Ruling Reshapes MSME Dynamics and CoC Primacy in the IBC Landscape

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Empowering Insolvency Resolutions: NCLAT’s Landmark Ruling Reshapes MSME Dynamics and CoC Primacy in the IBC Landscape

Introduction:

In a significant judgment, the National Company Law Appellate Tribunal (NCLAT) has reaffirmed the paramount status of the Committee of Creditors (CoC) in the Insolvency and Bankruptcy Code (IBC) process. The case involved ETCO Denim Private Ltd and raised critical issues regarding MSME registration during the Corporate Insolvency Resolution Process (CIRP).

Background of the Case:

ETCO Denim, a corporate debtor, obtained MSME registration during CIRP. The crux of the matter emerged when Mr Ramesh Shah, the ex-promoter, submitted a resolution plan claiming MSME benefits under Section 240A of the IBC. Despite the CoC approving Shah’s plan with a 77.56% vote share, the National Company Law Tribunal (NCLT), Mumbai Bench, rejected it, questioning the validity of MSME registration obtained post-CIRP initiation. The complexity further increased when the NCLT noted in its finding that the Resolution Professional (RP) had sought MSME registration without obtaining explicit approval from the Committee of Creditors (CoC). This aspect of the case raised questions about the procedural integrity of obtaining MSME status during insolvency.

NCLAT’s Ruling and Legal Basis:

The NCLAT overruled the NCLT’s decision, citing the Supreme Court’s precedent in Hari Babu Thota in CA No. 4422 of 2023. The judgment clarified that a corporate debtor can gain MSME status post-CIRP initiation, provided it’s before submitting the resolution plan. The NCLAT emphasized that the commercial wisdom of the CoC is non-justiciable, except on limited grounds specified in the IBC. Contrary to the NCLT’s findings, the NCLAT rejected claims that the Resolution Professional (RP) acted without CoC approval in obtaining MSME registration. The CoC kept informed and raised no objections, including the dissenting creditor, the Central Bank of India. The NCLAT directed the Adjudicating Authority to pass a fresh order approving the resolution plan within three months.

Implications of the NCLAT Ruling:

This judgment carries substantial implications for the insolvency resolution process. Firstly, the ruling opens the door for corporate debtors to acquire MSME status during insolvency, potentially increasing MSME participation in the resolution process. This could lead to more successful resolutions and revivals of MSME businesses. Secondly, it aligns with the IBC’s objective of maximizing the value of assets by allowing corporate debtors to leverage the benefits and incentives available to MSMEs. This could enhance the attractiveness of resolution plans and encourage more competitive bids.

Conclusion:

The NCLAT’s landmark ruling provides clarity and predictability in IBC implementation, safeguarding the CoC’s collective decisions. By upholding the CoC’s primacy and facilitating MSME participation, the judgment contributes to a more robust and effective insolvency resolution framework.

Disclaimer:

The information provided in this blog is for general informational purposes only and should not be construed as legal advice. Readers are advised to consult with qualified legal professionals for specific guidance. The author and publisher will not hold responsibility for any errors or omissions.

Click Here to read the regulatory order.

Taxpayer’s Delight: Clearing Small Demands, Easing Burdens!

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Taxpayer’s Delight: Clearing Small Demands, Easing Burdens!

On 1st February 2024, Finance Minister Nirmala Sitharaman announced during the interim budget the waiver of small outstanding demand under the Income Tax Act, 1961, Wealth Tax Act, 1957 or Gift Tax Act, 1958. The Income Tax department will waive off outstanding tax demands of ₹25,000 or less for the period upto the financial year 2009-10 and ₹10,000 or less for the financial years from 2011-12 to 2014-15. Notably, they will waive every single demand below ₹10,000 and ₹25,000, but the total of all these demands cannot exceed ₹1,00,000 for any specific taxpayer across all financial years.

When calculating the ceiling of ₹1,00,000, any demand entry with a value exceeding ₹25,000 or ₹10,000 shall not be considered. The waiver of outstanding demands will apply to any outstanding demands as of 31st January 2024.

The CBIT has specified that waiver of demand does not apply to the demands under TDS or TCS provisions of the Income-tax Act 1961. Eligible outstanding tax demand covers principal tax demands under the covered Acts, including interest, penalty, fee, cess, or surcharge levied under the provisions of such Acts.

The clarification also specifies that when computing the ceiling limit, they will not consider interest computed under section 220(2) due to delays in payment of demand.

The extinguishment of outstanding demand does not grant the taxpayer the right to:

  • Claim credit for the waived amount under the Income-tax Act, 1961, Wealth-tax Act, 1957, Gift-tax Act, 1958, or any other law, if such benefit has been granted.
  • Request a refund under Income-tax Act, 1961 Wealth-tax Act, 1957 Gift-tax Act, 1958, or any other law.
  • Impact any pending, initiated, or contemplated criminal proceedings against the taxpayer under any law, without conferring additional benefits, concessions, or immunity, unless specifically stated otherwise in the order.

Benefits For Taxpayer:

  • The Income Tax department expects that the withdrawal of outstanding tax demands will facilitate the timely issuance of refunds by resolving hurdles faced in processing refunds for subsequent assessment years due to pending demands from previous years.
  • The withdrawal of demand resolves tax disputes for taxpayers, offering them peace of mind.
  • Automatic waiver of interest and penalties in the scheme provides huge monetary relief to taxpayers and gets rid of legal hassles.

Process for waiving tax demands

The Income Tax Department’s Central Processing Cell will automatically apply the waiver without requiring any intervention from the taxpayer. They expect to complete the process within 2 months.

The taxpayer can check the pending status on the official income tax portal.

HOW TO CHECK THE STATUS?

  • Visit the income tax portal
  • Login and navigate to the pending action tab
  • Click on response to outstanding demand
  • It will show the data. In case of no outstanding demand, it will show the message ‘No records of demand’ and if the demand is waived off it will show “Demand extinguished”.

In case of any doubt, one can call the toll-free numbers 1800303090130 or 180020335435

CONCLUSION

This groundbreaking initiative vows to significantly alter the landscape for over 1 crore taxpayers burdened by numerous petty, non-verified, non-reconciled, or disputed direct tax demands dating back to 1962. This move not only brings relief to honest taxpayers but also paves the way for smoother refund processes in the years ahead.

Appointing a Nominee Director: Process for Start-up companies and SME companies.

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Appointing a Nominee Director: Process for Start-up companies and SME companies.

Who is the Nominee Director?

A Nominee Director is a director in a company appointed by financial institutions, banks, or investors to represent their interests on the Board of Directors and monitor the activities of the borrower company or investee.

Conditions For Appointment Of Nominee Director:

  1. Financial institutions appointing nominee directors must adhere to applicable laws and company agreements.
  2. Anybody with the legal authority under applicable laws can nominate the director, including the central or state governments.
  3. After appointing such a Director, the total number of Directors in the Company cannot exceed the maximum limit.
  4. The appointment of a such director precludes their classification as an independent director.

Procedure For Appointment Of Nominee Director:

  • AOA Authorization:

The appointment of nominee directors is subject to and governed by the provisions outlined in the company’s articles of association. In case the article of association does not provide authorization, the company has to alter the article to authorize the company to appoint such director.

  • Board Approval: 

The decision to appoint a nominee director typically requires board resolution under section 161(3). Hold a board meeting to discuss and vote on the appointment. Document the resolution in the board minutes.

  • Submission of Nomination Letter and DIR-3:                  

The person nominated as a nominee director shall submit a nomination letter and confirm that they have a Director Identification Number (DIN) which they obtain by the filing of Form DIR-3.

  • Consent and Declaration:  

Obtain the written consent of the nominee director agreeing to their appointment in Form DIR-2. They may also need to provide a declaration confirming their eligibility, and absence of disqualifications under section 164(2) of the Companies Act 2013 in Form DIR-8.

  • Filing of Returns with the ROC:

The company must submit a Return of Appointment of Directorship (Form DIR-12) to the Registrar within 30 days of the Board meeting. This submission should include a copy of the Board Resolution, Consent, and Declaration, along with the required documents attached to Form DIR-12:

  1. A certified True Copy of the Board Resolution passed
  2. DIR-2 Consent to Act as Director
  3. DIR-8 Declaration by Director
  4. Letter of Appointment.
  • Disclosure in MBP-1:

After the appointment, the disclosure is required to be obtained, i.e. the nominee director should inform the other companies that he is the director in Form MBP-1 about the appointment.

Disclaimer:

It’s essential to seek legal advice or consult with professionals familiar with corporate governance and regulatory requirements to ensure compliance throughout the process of appointing a nominee director. Additionally, maintain open communication and a positive working relationship with the nominee director to maximize their value to the company. 

REITs and InvITs – Financing Urbanization and Infrastructure in India: A Comprehensive Insight

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REITs and InvITs – Financing Urbanization and Infrastructure in India: A Comprehensive Insight

Picture this: you, the investor, have the power to own a slice of premium
real estate or vital infrastructure projects without the hassle of property
management or construction headaches. REITs and InvITs precisely offer
that – a passport to diverse, income-generating assets that were once
reserved for the elite few. Whether it’s gleaming office towers, bustling
shopping malls, or essential highways and power grids, these investment
vehicles open doors to a world of possibilities.


What are REITs and InvITs?

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts
(InvITs) were launched in India in 2014. As these instruments are relatively
new in the Indian investment landscape, there is substantial uncertainty
about their effectiveness and benefits.
REITs function like mutual funds, managing real estate properties for
regular income and capital appreciation purposes, thus, pooling funds
from investors to provide a liquid entry into real estate investment and
diversify portfolios.
Infrastructure Investment Trusts or InvITs are also like mutual funds that
pool money from investors that own and operate operational
infrastructure assets like highways, roads, pipelines, warehouses, power
plants, etc. They offer regular income (via dividends) and long-term capital
appreciation.


Advantages to Investors:

  • SEBI mandates REITs to invest at least 80% of their investable assets
    in developed and income-generating properties. This mandate by
    SEBI makes it a more stable and less risky investment option for
    investors.
  • Further, they need to distribute 90% of their income to investors in
    the form of dividends, which makes it a great passive income source
    for investors.
  • As the units of REITs and InvITs are listed on stock exchanges, there is
    reasonable liquidity for both the existing investors and the new
    investors.
  • For retail investors, it offers a great diversification option apart from
    equities, debt, and gold. With as little as 500 rupees, investors can lay
    their hands on high-class commercial real estate assets.


While REITs and InvITs are relatively new to Indian investing
landscape, several international markets, such as the United States,
Singapore, Australia, and Japan can help investors understand how they
perform during specific economic cycles. Given the vital role of
infrastructure in a country’s economic development, REITs and InvITs will
help channel funds for critical infrastructure projects without
putting a strain on government finances.

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