Firms earning more than US$ 1 billion through domestic real estate funds will now have to cough up tax from April this year, as per the budget unveiled by the finance minister, P. Chidambaram. So, the company earning more will now pay more tax to Indian government.

This move will hit major real estate banks like Reliance’s Urban Infrastructure Fund, ICICI Ventures, HDFC and Kotak Realty Funds even though 75 percent of their investments were made before April.

In the past one and half months, Indian real estate industry saw huge flow of funds into the country predicting a handsome return of around 30%, but they now feel letdown by this budget.

Following this, realty funds of some banks have started doing their calculation to for some other options.

Ajay Piramal’s India Reit, looking at raising a second round of capital in India is now having a second thought. The firm evinced interest in bringing foreign capital through the Mauritius route.

However, other senior executives of the same Indian real estate firm, said following this ruling, real estate developers will not be able borrow from banks which in a process will affect the cycle of Indian real estate development.

According the sources, the only option to avoid paying that tax will be to scout from foreign capital.

Shazad Dalal, VC & managing director, IL&FS Investment Managers, said the field is not even any more and it makes more sense to raise foreign capital.

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