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REIT : Real Estate Investment Trust

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Divya Singhvi

Income from Other Sources
Income Tax
REIT

Real estate is one of the vital sectors of the Indian economy. REIT is an investment vehicle that enables individual investors to earn income via the underlying real estate property. They do this without directly owning the property. It is similar to the concept of a mutual fund. Where a fund pools small sums from individuals and institutions and invests in stocks. The investments take place through a trust directly or via Special Purpose Vehicles (SPV). In REIT, the trust puts money in property. REITs own many types of commercial assets ranging from office spaces to hospitals, shopping centers, hotels, and warehouses.

Types of REIT

It is the most popular type of REIT. The majority of REITs are publicly traded equity REITs. Equity REITs own or operate income-producing commercial properties. The common source of income here is rents.

Commonly known as mREITs, it mostly involves itself with lending money to proprietors and extending mortgage facilities. REITs provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest on these investments. Mortgage REITs also generate income in the form of interest accrued on the money they lend to proprietors.

Investors can diversify their portfolio by parking their funds in both mortgage REITs and equity REITs. Hence, both rental income and interest income are the sources of income for this particular kind of REIT.

Public non-listed REITs (PNLRs) are registered with the SEBI. However, they are not tradable on the National Stock Exchange. These options are less liquid. Also, they are more stable as they are not subject to any market fluctuations.

Private REITs are are exempt from SEC registration and whose shares do not trade on National Stock Exchanges. These trusts function as private placements, which caters to a selective list of investors.

REIT – Criteria’s to Comply With

REITs need to meet the below criteria for their qualification as per SEBI guidelines 2019:

Taxability

Taxability of REITs

In the hands of Unit Holders

ITR for Capital Gains from Investment in Stocks
CA Assisted Income Tax Return filing for Individuals and HUFs having income from sale of securities.
[Rated 4.8 stars by customers like you]
ITR for Capital Gains from Investment in Stocks
CA Assisted Income Tax Return filing for Individuals and HUFs having income from sale of securities.
[Rated 4.8 stars by customers like you]

FAQ

Is REIT dividend taxable?

The dividend received was earlier tax-free in the hands of the investors. However, Finance Minister Nirmala Sitharaman in Budget 2020-21 scrapped the dividend distribution tax for companies and shifted the burden on investors. While nothing changes for SPVs and the trusts as they still won’t pay tax, unitholders of REITs are no longer exempt.

What is the impact of Covid on the REIT?

-Concern over the demand for office space as some companies are planning to continue with the work from home (WFH) model adopted to battle the covid-19 infection attributes to fall the value of REIT.
– Also, the change in the income tax law, making dividend income taxable in the hands of some investors, will make REITs less attractive.

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