REIT tax treatment outlined during Budget
The finance minister had outlined the tax treatment for real estate investment trusts (REITs) in his Budget speech. Sebi, the markets regulator, had proposed draft regulations, which have now been approved by the government. A REIT is to be set up as a business trust and its units are to be mandatorily listed on the stock exchange.
A retail investor can invest a minimum of R2 lakh in the units, which hold commercial real estate assets. These units can be traded and freely transferred and are likely to offer liquidity to the investor. The regulations permit resident and non-resident investors to participate, but the expectation of both these investors could be different. Expectations of a non-resident investor may be to earn a return, which is comparatively higher to what is offered in his country of residence, and takes care of exchange difference.
On the other hand, the expectation of a resident investor may be to earn a higher return than what is offered by banks on fixed deposits or from government securities. It is expected that the average yield from commercial properties will be in the range of 10-11 percent. After expenses (of 2-3 percent), a REIT could offer an 8-9 percent pre-tax return on the investment.
Source: The Financial Express
