How Tax Rules Help REIT Investors Earn More Over the Long Term


Real Estate Investment Trust (REIT) is a real estate investment without owning the property. Compared to direct real estate investment, here one can start investing with a small amount and buy or sell at any time because the liquidity is quite high compared to direct real estate investment. In REITs, an investor has the option of investing in direct REITs or in non-capital REITs. However, if one sticks to the tax standards, an investor investing in REITs keeping a long-term time horizon, he could obtain an indexation advantage, which is not available in direct real estate investing.

Speaking about how long term REIT investments help an investor earn more; Pankaj Mathpal, Founder and CEO of Optima Money Managers, said: “REIT investments are comparatively better than direct real estate investments because they provide more liquidity to an investor. on long-term investments, which is not available in direct real estate investing. In long-term investment in REITs, cost appreciation is applied to income and therefore the net outflow of income tax becomes less whereas in real estate, income is just the difference between the price. purchase or sale of its properties. “

Highlight the tax advantage on long-term investment in REITs; Vishal Wagh, Head of Research at Bonanza Portfolio, said: “Interest and dividends received by the REIT from SPVs are tax exempt. The REIT is also exempt from tax on its rental income, which it could have earned if it directly owned the property. The rental income of the REIT is exempt in its hands, but taxable in the hands of investors. With appreciated stocks, you can sell your stocks over several years to spread the gains. Unfortunately, investing in real estate is not afforded the same luxury; the full amount of the gain must be claimed on your taxes in the year the property is sold. “

Asked about the tax benefit on dividends and interest earned; Amit Gupta, Managing Director of SAG Infotech, said: “It should be noted that the tax applicability to the REIT investor is only for the part of the cash flow, which is also the interest income of the REIT by the SPVs. (SPV exempt from this too) and rental income from the REIT (exempt for the REIT). If anyway, the SPV opts for a reduced rate on income tax, the applicable tax on cash dividends and remainder all cash received is entitled to be tax exempt This is a significant advantage of a REIT over a normal corporate structure, where the company pays tax on its profits, and shareholders are subject to dividend tax regardless of the tax rate paid by the company. can, therefore, offer investors a higher after-tax return, compared to a normal business structure. “

Speaking on how the income tax rule is applied to REIT investments; Vishal Wagh of the Bonanza portfolio said: “As REIT is listed, in the event that an investor sells before 3 years, gains will be considered short term and will be taxed at 15 percent, while long term gains (after 3 years) above ??1 lakh will be taxed at the rate of 10 percent (without indexation). “

However, Pankaj Mathpal of Optima Money Managers said that in a long-term REIT investment, an investor has the option of choosing an indexing benefit by paying 20 percent of net income after deducting cost appreciation on the time period. Mathpal also said that REITs are required to pay 90% of their rental income as dividends to REIT investors.

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