Real Estate Investment Trusts (REITs) have become a popular investment option for individuals seeking exposure to real estate without directly owning or managing properties. They offer a simplified and efficient way to invest in large-scale real estate projects with relatively small capital. However, income from REITs is taxable, and understanding the tax implications is crucial for optimising returns and making informed financial decisions.
What Are REITs?
REITs are entities that acquire, own, manage, or finance income-generating real estate. They function like mutual funds but focus exclusively on real estate rather than stocks or bonds. By pooling funds from multiple investors, REITs allow individuals to invest in commercial real estate projects without the operational responsibilities of property ownership. Investors earn income through rental revenue, interest, or capital gains from these properties.
In India, REITs primarily invest in assets like office spaces, shopping malls, and warehouses. Prominent Indian REITs include Embassy Office Parks REIT, Mindspace Business Parks REIT, Brookfield India REIT, and Nexus Select Trust REIT.
The SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”) provide a framework for registration and regulation of Real Estate Investment Trusts (“REIT’s”).
What is a Special Purpose Vehicle (SPV)?
SPV means any Indian company
(i) in which the REIT holds or proposes to hold not less than 50% of the equity share capital or interest;
(ii) which holds not less than 80% of its assets directly in properties and does not invest in other special purpose vehicles;
(iii) which is not engaged in any activity other than holding and developing property and any other activity incidental to such holding or development.
Eligibility Criteria for REIT Classification
To qualify as a REIT, entities must meet specific requirements to ensure their primary focus is on real estate income and serve the interests of diverse investors:
