Hi @Quicko, can you please tell how does the taxation work on REIT’s and InvIT’s? How are the returns from selling these instruments and dividends we receive are taxed, etc.
Hi @Parth111
- Transfer of units by unit-holders shall be chargeable to Capital Gains Tax at applicable rates.
- Any short-term capital gains arising on the transfer of units shall be chargeable to tax at 15 percent. Long-term capital gain is taxable at 10% if the amount exceeds INR 1 lakh.
- Unit-holders receiving any income distributed by trusts such as interest or dividend shall be treated as income of the unit-holder for that previous year.
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@Quicko is correct about taxes which arises when you transfer the units. They are incorrect about the distributions. The Quarterly distribution has 3 components. Not all of them are taxable… Only interest component is taxable, rest is tax free. Please read the Quarterly factsheets of the REITs to get more idea…
In the buyback offer by the company ; the shareholder participating , will not bear any capital gain tax . And . But . Instead . The company bears the tax !
Is it true ?
If it is true then isn’t it unfair on the part of the existing shareholders , promoters , of the company ?
Commercial property tax , fees , charges etc are more , compare to the residential property!
Is it so ?
@Quicko I have a doubt on REIT capital gain calculation… how does return of capital reduce the cost of acquisition? Is it simply cost of acquisition/ purchase price of REIT unit minus all “return of capital” values after the date of purchase OR
Is it more complex like 300(being the issue price of reit at the time of IPO) minus all “return of capital” since IPO. Let this number be ABC. now will capital gain be my selling price minus this ABC ?
The reason for this confusion is the April 2023 finance act amendment that had reference to IPO issue price linked to “return of capital” proceeds.
Hello @Viral_Jain1
According to the Income Tax Act, the capital gain on the sale of REIT units is calculated as:
Sale Price – (Purchase Price – Return of Capital),
where Return of Capital refers to the portion of capital repaid to the unit holder. It is important to note that the purchase price should reflect the actual amount paid by the investor, not the issue price or IPO price.
Example:
If you bought REIT units for ₹3,00,000 and received ₹30,000 as Return of Capital, then your adjusted purchase price will be ₹2,70,000. If you sell the units for ₹3,80,000, the capital gain will be ₹3,80,000 – ₹2,70,000 = ₹1,10,000.
Hope, this helps.
@Arockiya_Raja How to adjust acquisition cost ? Do we have to do it manually ?
Yes, you have to adjust it manually. Brokers don’t do it.
Formula: Capital gain = Sale price − (Your purchase price − ROC received on your units)
Get the ROC per unit from the REIT’s distribution announcements (the “repayment of debt” component).
Multiply it by your units, then subtract the total from your purchase cost.
Enter the adjusted cost in your ITR’s capital gains schedule.