Investing in real estate entails a high ticket size allocation. Due to low liquidity and large investment, people fi nd it difficult to buy property. Investing in REITs is an alternative approach to having an exposure to real estate. REITs or Real Estate Investment Trusts (REITs) are funds that invest their corpus in income producing commercial and industrial properties.
Features of REITs
An investor can purchase even one share of REITs at their listed price and can sell on the exchange at the prevalent market price. An investor earns income in the form of interest, dividends, amortisation of SPV and capital gains.
Investing in REITs
To invest in REITs, one needs to have a demat account. REITs are listed on the stock exchange and investors can invest in the units of REITs in the same way as one purchases shares on the exchange.
Tax aspects
Interest income received from REITs is subject to taxation. Tax on dividend income depends on whether the REIT had obtained special tax concession from the government. If yes, then the dividend is taxable in the hands of the investor. If not, then no tax is applicable. Income from amortisation of SPV debt is also not subject to any tax in the hands of the investor.
Sale of REITs
Capital gains made on sale of Indian REITs is subject to STCG tax if held for less than one year at the rate of 15%. Investments held over one year are subject to LTCG tax at the rate of 20% in excess of Rs.1 lakh. It is always advisable to consult a tax adviser before making investment in such assets.
Points to note
- Investment in REITs can be made as a percentage allocation of the overall asset allocation.
- Some MFs carry an exposure to REITs, investors can also opt for investing in these funds to achieve an allocation to REITs.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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