The Government has announced a tax pass-through status for REITs (Real Estate Investment Trust) in the Budget proposals. Taking a hint, SEBI has decided to rework the REIT proposals for final approval and notification, paving the way for its rollout. So far, the tax pass-through status was the only stumbling block for REIT and with this change, SEBI is now fully geared to finalize it soon. Under the incentives proposed for REITs, the interest income from REITs for the unit holder would have a pass-through status while capital gains and dividend distribution will be taxed.
The move would help developers monetise ready commercial assets, attract foreign and domestic capital and incentivise those who are developing or investing in projects under construction by giving an exit route through sale to REITs and help large players plan long gestation projects. Under the proposed system, the interest income from REITs to end investors would be subject to favourable taxation and there would also be tax deferment on the initial transfer of property to REITs. However, the dividend paid to investors is subject to corporate income tax and dividend distribution tax