Real Estate Investment Trust (REIT) There is a realty investment without owning the property. As compared to direct real estate investment, here one can start investing with less amount and can buy or sell at any time as the liquidity is quite high as compared to direct real estate investment. In REITs, an investor has the opportunity to invest in direct equity or non-equity REITs. However, if we go by the income tax norms, an investor who invests in REITs with a long-term horizon in mind, will be able to get indexation benefits, which are not available in direct real estate investing.
Speaking on how long-term investing in REITs helps an investor to earn more; Pankaj Mathpal, Founder and CEO, Optima Money Managers, said, “REIT investment is comparatively better than direct real estate investment as it gives more liquidity to an investor. Also, if invested in REIT stocks, then The investor has an indexation benefit. On long-term investments, which is not available in direct real estate investing, in long-term REIT investments, cost appreciation is applied to one’s income and therefore net income tax expense is reduced while fixed The difference in one’s income in property is the value between buying or selling one’s assets.”
highlighting the income tax benefits on long-term REIT investments; Vishal Wagh, Head of Research, Bonanza Portfolio, said, “Interest and dividends received by REITs from SPVs are exempt from tax. The REIT is also exempted from tax on its rental income, which it may have earned by directly owning the property. The rental income of a REIT is exempt in its hands, but taxable in the hands of investors. With appreciable stock, you can sell your shares over several years to spread out the capital gains. Unfortunately, investing in real estate The same luxury is not allowed; the entire profit amount must be claimed on your taxes in the year the property was sold.”
When asked about income tax benefits on dividends and interest earned; Amit Gupta, MD, SAG Infotech, said, “It is to be noted that the tax applicability for a REIT investor pertains only to the cash flow portion, which is also the interest income from REITs by the SPV (SPVs are exempted from this). also) and rental income of REITs (exempt for REITs). If, however, SPVs opt for a discounted rate on income tax, the cash flow is tax exempted on dividends and all remaining cash flows are tax exempt. A REIT has a significant advantage compared to a normal company structure, where the company pays taxes on its profits, and shareholders are subject to tax on dividends, regardless of the tax rate paid by the company. A REIT can, therefore, effectively deliver higher after-tax returns to investors than a normal company structure.”
Speaking of how the income tax rule applies to REIT investments; Vishal Wagh of Bonanza Portfolio said, “As a REIT is listed, if an investor sells it before 3 years, the gain will be treated as short-term and will be taxed at 15 per cent, while the long-term gain (after 3 years) will be up ₹1 lakh will be taxed at the rate of 10 per cent (without index).”
However, Pankaj Mathpal of Optima Money Managers said that in a long-term REIT investment, an investor has the option of opting for an indexation benefit that pays 20 percent on net income after cost escalation over a period of time. Mathpal also said that REITs are obliged to pay 90 per cent of their rental income as dividend to REIT investors.
Don’t miss a story! Stay connected and informed with Mint.
download
Our App Now!!
.