REIT Tax Structure to Mirror Equity Mutual Funds
New Delhi: In a bid to enhance competitiveness with other investment options, Indian real estate companies are advocating for a revised tax framework for Real Estate Investment Trusts (REITs). The proposed structure aims to align REIT taxation with that of equity-based mutual funds, both of which fall under the purview of the Indian Trust Act, 1882.
REITs: A New Avenue for Real Estate Investment
REITs function as trusts that own and manage income-producing real estate, encompassing diverse property types such as shopping centers, hotels, and office spaces. This structure facilitates broader participation in real estate investment, allowing smaller investors to potentially benefit from lease rentals and property value appreciation, a practice widely adopted globally. Furthermore, these trusts would enjoy the benefit of deducting dividends distributed to shareholders from their overall corporate taxable income.
Tax Exemptions and Projected Growth
Anticipating exemption from corporate taxes, REITs would shift the tax burden to stockholders through dividend distribution tax. Industry projections suggest substantial growth for the Indian REIT market, estimating a valuation of five billion dollars within the next four to five years. This signifies the potential for REITs as a significant real estate investment channel and income generation for investors.
Benefits for Small Investors
This new structure would allow small investors to participate in the real estate market. They would benefit from lease rentals plus property appreciation, which is a global practice.
Dividend Deductions for REITs
Proposed regulations would permit REITs to deduct dividends paid to shareholders from their taxable corporate income.
Tax Exemptions
REITs themselves are expected to receive tax exemptions, leaving stockholders to manage the dividend distribution tax.