Samhita works for an MNC and earns a handsome salary. She is a strong believer in creating passive income generating assets. Samhita has been consciously investing in diversified assets to lower the risk. Her asset portfolio includes investments in gold, fixed deposits, PF, post office schemes and mutual funds. Recently her friend who is a finance professional suggested that she should also include REIT in her portfolio. 

It is beyond the wildest dreams of a common man to own a commercial property as the prices are sky rocketing. But rent from a commercial property is definitely a good passive income option that one can consider – if there is a possibility.

REIT is an answer for everyone who has a similar line of thought. It is all about investing in a commercial property without hassels of funding it entirely and maintaing it. 

What is REIT? 

Real Estate Investment Trust (REIT) is an investment trust governed by SEBI regulations. An investor who holds units of a REIT can own income generating properties, which would be far from reach in normal circumstances. 

In India, REITs can be listed or unlisted (both being monitored and regulated by SEBI regulations). 

So far only three REITs are listed in India – 

1. Embassy Office Parks REIT Ltd (INR 30,116 Crores*) 

2. Mindspace Business Parks REIT Ltd (INR 17,185 Crores*) 

3. Brookfield India Real Estate Trust Ltd (INR 7,857 Crores*) 

*Market Cap as on May 12,2021 

REITs hold properties through a subsidiary Special Purpose Vehicle (SPV). 

As per SEBI regulations, REITs are required to invest 80% of their assets in developed and income generating assets. In India, REITs are allowed to invest only in commercial real estate and office spaces. 

How does one benefit by investing in REITs? 

1. As per SEBI regulations, REITs are required to distribute 90% of the rental income as dividends. 

2. REITs also receive interest on loan given to SPVs through which they hold the properties, which is in turn distributed to the unit holders. 

3. As the value of properties held under trust appreciates, the investor gains from such appreciation. 

Taxation 

1. Dividend distributed is exempt in the hands of the unit holder, if the REIT does not opt for a lower corporate tax of 22% (as against 30%). If the REIT chooses to be taxed at the lower income tax rate, the dividends shall be taxed at slab rates in the hands of the unit holder. 

2. If REITs are sold within 3 years of purchasing them, the short term capital gains shall be taxed at 15%. If they are sold after 3 years, the long term capital gains shall be taxed at 10% (upto ₹1 lac exempt) 

How can we help you?

Various clauses from the Income Tax Act may be simplified in online contents. But most of the time, it requires professional help in identifying suitable route for specific instances. Similar to nurturing and taking care of personal health, it is important to also keep a tab on one’s financial health. We at Chockalingam Unnamalai & Associates, can help you understand the pros and cons of various choices you make in the context of personal taxation. You can bank on us for a stress free tax filing and related compliances.

Call us at +91 73050 56628 or drop a mail to frontoffice@onesourcevault.com

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CA Chockalingam K
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