REITs LIKELY TO GET TAXGAINS COATING

SEBI has made a case to the Government to consider giving tax benefits to Real Estate Investment Trusts (REITs) on the lines of mutual funds to encourage bigger investors’ participation. The Government may propose the tax treatment for REITs in Budget 2008 subject to the prior approval of SEBI in regards to the REIT structure. REITs are seen as low volatile investment options offering steady income through all market conditions, given that they invest largely in income-generating real estate. REITs are investment vehicles registered under the Indian Trusts Act and have to be approved by SEBI. They are managed by professional real estate management companies and can invest in properties including apartments and malls. Investors can buy units in REIT just as in a mutual fund. They will earn dividend income on the unit or shares of an REIT. The Income Tax law, now. provides for a pass through status for mutual funds and all income the funds earns is tax-free. The unit holders do not have to pay tax on their dividend income but any income distributed by the mutual fund attracts a dividend distribution tax depending on the fund’s nature. SEBI has recommended extending a similar tax treatment to REITs. This would mean giving them a pass through status and exempting all income earned by REITs from tax. Investors holding REIT units should also be spared from paying tax on dividends. But income distributed by the REIT would attract dividend distribution tax. SEBI has suggested in its draft guidelines that REITs should distribute not less than 90% of their net income after tax as dividend to unit holders.