Your complete guide
to REITs
~ Regulated under Securities and Exchange Board of
India (Real Estate Investment Trust) Regulations, 2014
What are REITs ???
Just as,
Equity : Mutual Funds
Real Estates : ❓❓
Are there any differences in REITs and
Mutual Funds ?
or are they the same concept.💭
https://www.investopedia.com/articles/investing/040315/reits-versus-real-estate-mutual-funds.asp
Source: https://www.reit.com/investing/global-real-estate-investment
How much money
do you think you
need to start
investing
in Real Estate ?
That’s right! You can start
investing in Real
Estate starting
from as low as ₹300.
Where does your
INVESTMENT goes?
Example of a typical ₹315
investment in Emabssy
Office Parks REIT.
Source : Annual report 2022 Embassy office Parks
What are the
sources of Income
for a REIT ?
- Rentals
- Capital appreciation
- Interest income
To qualify as a REIT, an entity must:
1. Invest at least 75% of total assets in real estate.
2. Derive at least 75% of its gross income from rents from real property, interest on
mortgages financing real property or from real estate sales.
3. Pay at least 90% of taxable income as shareholder dividends each year.
4. Be an entity that is taxable as a corporation.
5. Be managed by a board of directors or trustees.
Facts:
6. Have a minimum of 100 shareholders.
Embassy REIT, sponsored
by Blackstone and Embassy
7. Have no more than 50% of shares held by five or fewer individuals. is the first listed REIT in
India & the largest in Asia
For knowledge purpose only. Not testable in exam (by area). The company
owns & operates 43.2 MSF
(million square feet).
Source: https://www.sebi.gov.in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-real-estate-investment-trusts-regulations-2014-last-amended-on-february-14-2023-_68061.html
Meet Mr Larren Muffet.
He is a contractor who has recently
retired and has a corpus of ₹50 Lakhs.
He is looking for Investment options
where he gets regular cash flows to
meet his daily expenses.
Story for illustration purposes only
Meet Mr Melon Lusk
Melon Lusk is a recent college
graduate [B-Com (H)] . On the belief
that he has specialised financial
knowledge, he has created an All-
Equity portfolio with excessive
exposure on small cap stocks.
Story for illustration purposes only
Drawbacks of Investing in REITs
1. Less investment options to choose from
2. No guaranteed returns
3. Rising interest rates could affect returns
4. Risks associated with specific property types
5. Lack of Control over returns and performance
6. Lack of historical data
Important Parties
involved in REITs
➔ Sponsor
➔ Manager
➔ Special Purpose Vehicle
➔ Investors
➔ Trustees
Taxation of REITs
Aspects of Taxation in REITs :
1. Taxation for REIT
2. Taxation for SPV
3. Taxation for Unit holders
Taxation for REITs
REIT
Income from LLR of Real Estate Interest and Dividend* from SPV Other Income
[10(23FCA)] [10(23FC)]
[115UA(2)]
Exempt for REIT Taxable at MMR for REIT
Taxable for Unitholders [115UA(3)]** Exempt for Unitholders [10(23FD)]
**TDS to be deducted by REIT u/s 194LBA
Capital Gains income on disposal of assets by trust - Taxable for REIT as per section 111A/ 112/ 112A
Component of income attributable to such capital gain distributed to unitholders is exempt in their hands.
[115UA(2)]
*If the SPV has exercised the option to pay corporate tax @ 22% u/s 115BAA, then such dividend shall be be taxable for the unitholders otherwise exempt.
Source : Direct Tax Laws and International taxation by CA Ravi Chhawchharia
Section 115UA (1) : Any income distributed by a business trust to its
unitholders shall be deemed to be of the same nature and in the same
proportion in the hands of the unitholders, as it has been received by,
or accrued to the business trust.
Taxability on transferring of units
- STT leviable if units are listed.
- Period of holding, if greater than 36 months than LTCG
otherwise STCG.
- Taxation as per section 111A/ 112A.
Taxability for Non-residents or Foreign company :
- Interest income @ 5%
- Dividend income @20% (if 115BAA applicable)
- Rental income @rates in force
Source : Direct Tax Laws and International taxation by CA Ravi Chhawchharia
It’s no surprise that Mr Larren Muffet and
Mr Melon Lusk both invested in REITs
after watching the presentation.
So what are you waiting for ?
THANKYOU !
Should you have any questions feel free to ask !
Source : Chai pe Charcha
