In his maiden Budget, finance minister Arun Jaitley announced that Real Estate Investment Trusts, or REITs, will have a pass-through status from a taxation perspective.
While this will surely help builders, it will also mean an opportunity for you as a retail investor to hold a small piece of a rental income producing real estate asset.
While this will surely help builders, it will also mean an opportunity for you as a retail investor to hold a small piece of a rental income producing real estate asset.
ET explains the concept of a REIT...
What's a REIT?
REIT is a real estate investment trust. It can be set up by a real estate developer or a private equity fund by pooling together rental real estate assets -office buildings, malls, warehouses -into a trust.
A REIT issues units that are traded like a mutual fund unit on any exchange that it is listed on.
Like shares represented ownership in a company , a unit of REIT represents ownership of a pool of rent producing real estate assets, or of a company owning a real estate project.
Capital market regulator Sebi will shortly announce final guidelines for REITs.
What Does It Mean To Retail Investors?
Investments in REITs will be backed by assets, so they will be ideal for retail investors who want to get a piece of Indian real estate but without the hassles of property titles and other regulatory risks.
So, What Has Been Holding It Back So Far?
Market regulator Sebi had notified the regulations for REITs last year, but there was lack of clarity on tax benefits for the new product from the govt's side.
There was a concern over double taxation of REITs.
How Is It Any Different Now?
The finance minister announced in the budget that REITs will have pass through in relation to income from the project, which will eliminate multiple taxation.
Who Will Be Taxed In Case Of Pass Through To REIT?
Investors subscribing to the REIT and receiving rental income through it will be subject to tax on income at a concessional rate of 10% in case of residents & 5% for non-residents.
REIT will withhold tax at such rates from the payouts.
Sale of listed units of a REIT will be exempt from longterm capital gains tax. Short-term capital gains will be subject to tax at 15% (plus applicable surcharge and education cess).
What's a REIT?
REIT is a real estate investment trust. It can be set up by a real estate developer or a private equity fund by pooling together rental real estate assets -office buildings, malls, warehouses -into a trust.
A REIT issues units that are traded like a mutual fund unit on any exchange that it is listed on.
Like shares represented ownership in a company , a unit of REIT represents ownership of a pool of rent producing real estate assets, or of a company owning a real estate project.
Capital market regulator Sebi will shortly announce final guidelines for REITs.
What Does It Mean To Retail Investors?
Investments in REITs will be backed by assets, so they will be ideal for retail investors who want to get a piece of Indian real estate but without the hassles of property titles and other regulatory risks.
So, What Has Been Holding It Back So Far?
Market regulator Sebi had notified the regulations for REITs last year, but there was lack of clarity on tax benefits for the new product from the govt's side.
There was a concern over double taxation of REITs.
How Is It Any Different Now?
The finance minister announced in the budget that REITs will have pass through in relation to income from the project, which will eliminate multiple taxation.
Who Will Be Taxed In Case Of Pass Through To REIT?
Investors subscribing to the REIT and receiving rental income through it will be subject to tax on income at a concessional rate of 10% in case of residents & 5% for non-residents.
REIT will withhold tax at such rates from the payouts.
Sale of listed units of a REIT will be exempt from longterm capital gains tax. Short-term capital gains will be subject to tax at 15% (plus applicable surcharge and education cess).
Source: Economic Times
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