INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Megha Arora, JSA
Where land is allotted by the government, the process of obtaining approvals for the imple - mentation of the project is generally faster. In some large projects, the developer may be required to lease/relinquish a small portion of the property in favour of the electricity supply company for the setting up of a sub-station to supply power to the development. 4.7 Enforcement of Restrictions on Development and Designated Use Authorities enforce the regulations and restric - tions fairly commonly; if the development is not in compliance with the applicable laws, approv - als such as the completion certificate evidencing completion of the project will not be given. 5. Investment Vehicles 5.1 Types of Entities Available to Investors to Hold Real Estate Assets Real estate assets can be owned/held by private limited companies, public limited companies, LLPs and partnerships, as well as REITs. 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity Private and public limited companies are required to be incorporated under the Compa - nies Act 2013 and to adopt charter documents setting out the objects and regulating the opera - tions of the entity. LLPs are incorporated under the LLP Act 2008. Foreign investment into LLPs engaged in construction development activities requires regulatory approval. The costs for setting up companies or LLPs in India are about the same, but the cost of opera - tions for a company would likely be higher than the cost of operations for an LLP.
Partnerships can also hold land, but foreign investment in partnerships requires regulatory approval. It is relatively inexpensive to set up and register partnerships but this may not be a preferred structure since the liability of the part - ners is not limited. REITs are set up and operated in accordance with the REIT Regulations 2014. Typically, foreign investors prefer private limited companies, while domestic investors prefer part - nerships and LLPs for smaller holdings. LLPs are also increasingly being preferred for smaller ownership of holiday/luxury rental real estate on a time share basis or under similar arrangements amongst partners of LLPs. Companies are generally subject to corporate income tax at the rates of 22%, 25% or 30% (subject to applicable surcharge and cess), as may be applicable. LLPs are subject to income tax at the rate of 30% (plus applicable surcharge and cess). REITs are governed by a special income tax regime whereby they are granted limited pass- through status due to which certain income is taxed directly in the hands of the investors. Income in the nature of interest and dividends received from “special purpose vehicles” as well as rental income received from immovable prop - erty held directly by the REIT are subject to tax in the hands of the investors of the REITs, subject to conditions prescribed. Any income that has not been accorded pass-through status would be subject to tax in the hands of the REIT and be exempt in the hands of the investors. 5.3 REITs REITs are permitted to invest in land and any per - manently attached improvements to it, whether
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