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Realty Mutual Funds To Get Tax Free "Goodies" As REIT's Get favourable tax treatmentsBy Sumit Kumar, Section Finance & Taxes
The uncertainty over the tax treatment of real estate mutual funds is set to end soon. The government will waive tax on income generated by mutual funds which float schemes that aim to invest mainly in the stocks of real estate firms.
According to a senior revenue department official, real estate mutual funds and other mutual funds that invest in shares of real estate companies will be spared of paying tax on all income. The dividend income of unit-holders, who buy these products to reap the gains of the realty boom, will also be tax-free. While real estate mutual funds will stand to gain due to a favourable tax treatment, real estate investment trusts (REITs), which directly buy and sell property including apartments and shopping malls, could be denied such benefits, a senior revenue department official said. "Sebi-registered real estate mutual funds will be given a tax pass-through status if they invest the money raised from investors in shares of real estate companies. So will be the case for all mutual funds investing in shares of realty companies," said the official. India's securities market regulator Sebi had approved the launch of real estate mutual funds almost two years ago. But the operational guidelines are yet to be unveiled. Now, with greater clarity on valuation norms and the calculation of the net asset value (NAV), the regulator may soon prepare the ground for the launch of real estate mutual funds, a Sebi official said. Real estate mutual funds are expected to be close-ended, and the units of these funds will be listed on the exchanges. Such funds invest in both listed and unlisted securities of realty firms. They offer an opportunity to investors to take an exposure to a sector which offers reasonably attractive capital gains and a steady dividend income. However, the Reserve Bank has not been comfortable with more investment flowing into realty, given the dangers of an asset-price bubble. Sebi wants tax reliefs for REITs Click on "Full Story" For Read This Point
Sebi wants tax reliefs for REITs
REITs are investment vehicles registered under the Indian Trusts Act. They are managed by professional real estate investment management companies and invest in properties. They also own and manage properties. An investor can buy units in an REIT just as he does in a mutual fund and earn a dividend income on the unit or shares of an REIT. Ahead of this years' budget, the capital markets regulator had told the government to consider granting tax benefits to REITs on the lines of local mutual funds to encourage wider investor participation. But the revenue department, it appears, has turned down the proposal. The income tax law now provides for a pass-through status for mutual funds and all income earned by the fund is tax-free. But any income distributed by the mutual fund attracts a dividend-distribution tax, depending on the nature of the fund. The maximum rate of dividend distribution tax is 25%. But unit holders need not pay any tax on their dividend income. Sebi had recommended extending a similar tax treatment to REIT. "REITs that are not regarded as mutual funds could be taxable according to the normal provisions of law that apply to trusts. Their taxability could be in line with venture capital funds. This means tax can be paid on income either at the trust level or at the investors level," said Shefali Goradia, head-international taxes, Nishith Desai Associates. REITs are perceived to be low-volatile investment options, offering steady income stream through all market conditions, given that they invest largely in income-generating real estate. Source: Economic Times, March-31-2008
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