REITs are like mutual funds, which can be listed and traded on stock exchanges. They are tax efficient as they need to distribute majority of their income as dividends.
In the Union Budget, finance minister exempted capital gains for the sponsors at the time of listing units of REITs and gave pass-through of rental income on assets held by REITs to unit holders.
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Sunil Hingorani, director (finance) at K Raheja Corp, one of the largest owners of commercial properties in the country, elaborates.
“These (exemptions) don’t do anything. When you are transfering assets to REIT, holding companies attract MAT on 100% of notional gains,” Hingorani says.
He adds that since companies distribute entire profits, there is a lot of tax leakage.
Punit shah, co-head of tax at KPMG says the exemptions announced by the FM becomes irrelevant since MAT liability is triggered twice – once at the sponsor level when he transfers shares to REIT and secondly when they sell units of REITs.
“This could act as dampeneres,” he said,
He said the FM has not clarified on stamp duty, which is a state subject, too.