REITs start picking up momentum among the investors
When the Finance Minister Arun Jaitley presented his maiden budget on July 10 this year, there was a lot of expectation in the real estate and infrastructure sector as they were hoping that the new government will take measures to give a boost to these ailing sectors.
This year’s budget saw the amendments enacted in relation to the taxation of real estate investment trusts (REITs) and of investors in REITs.
The Securities and Exchange Board of India (SEBI) has also finalized the regulations in relation to the REITs. Investors are preferring to invest in REITs as they are offering an alternative route to direct investment in the commercial real estate.
Under the SEBI regulations, a REIT would be structured as a trust. The trust would invest in the commercial real estate, either directly or through special purpose vehicles (SPVs). The SPV has to be a body corporate like a company or a limited liability partnership (LLP). The REIT will raise funds from investors through an issue of units, which will be listed on a stock exchange just like mutual funds and shares.
When one invests in a commercial property, the rent from it is taxed as income from house property, and deduction is allowed for municipal taxes paid and for 30% of the net rent after deduction of municipal taxes. Effectively, therefore, a maximum of 70% of the rent income is taxable at the slab rate to the investor. Up to a total income of Rs.1 crore of the investor, the maximum tax rate applicable is 30.90%. If it exceeds Rs.1 crore, the maximum rate applicable is 33.99%. On sale of the property, if the property is held for more than 36 months, the long-term capital gains is taxable at 20.60% (or 22.66% if the investor’s income exceeds Rs.1 crore). These gains are computed after indexation of the cost by applying the cost inflation index.
Source- Mint
finance minister Arun Jaitley, limited liability partnership, Real Estate Investment Trusts, REIT, REITS, SEBI, Sebi regulations, Securities and Exchange Board of India, special purpose vehicles, SPVs
