Large FDI providers in real estate have approached the finance ministry seeking tax changes to the current framework for Indian real estate investment trusts (REITs). The recently unveiled structure reduces cash in the hands of shareholders by almost one-fifth compared to a listing in Singapore, they told the government officials in recent meetings.

REITs allow investors to own shares in rent yielding real estate assets that are listed on the bourses. These investment trusts are touted as being potential game changers for the realty and infrastructure sectors, which are facing liquidity pressures.

But the current tax heavy framework could see some of India's largest commercial assets owners like Embassy Office Parks, RMZ Offices and K Raheja Corp veering towards a listing in Singapore.

Global pension funds, sovereign wealth managers and private equity houses like Canadian Investment Pension Plan, Qatar Investment Authority and Blackstone are prolific backers of Indian commercial assets.

India has the potential to list about 170 million sqft of rent-yielding assets through REITs, of the total 370 million sqft of Grade A office stock in the country.

"Unlike countries such as Singapore, UK and US where tax incidence is a major pass through, in India it's a partial pass through. This is a challenging scenario and not a very promising one for investors in India as of now," said Anuj Puri, country head of consultancy firm JLL India.

At constant market multiples, Singapore listed REITs put 19% more cash in the hands of shareholders as compared to an Indian REIT. Puri added that the level of challenge from Singapore would depend on how tax-efficient the Indian REIT structure can become for investors.

Singapore shines on account of a lower tax regime for REITs, which is overall 12.5% less than what the Indian regulator has put in place. Besides the 10% withholding tax, the foreign investors are wary of the 7.5% dividend distribution tax and the 'further income tax' that has been proposed.

The ongoing discussions with the finance ministry officials involves tax free dividend payout and no 'further income tax ' on unit holders.

"Clarifying the tax structure is of high importance at the moment because a successful India REIT market will require strong support from existing landlords and investors," said Anshuman Magazine, CMD of property consultancy CBRE South Asia.

In July, TOI reported that Bangalore-based RMZ Offices was readying for a REIT listing either in Singapore or India, and would eventually pick a market that puts more money in the hands of shareholders.

Deepak Chhabria, MD - finance, RMZ Corp, said, "We are engaged with relevant authorities for clarifications on the recently announced REIT regulations." He didn't wish to elaborate on where the company plans to list its REIT, which is backed by Qatar Investment Authority.