REITs and InVITs have sought clarification from the Finance Minister and the Central Board of Direct Taxes’ (CBDT) on whether unitholders of REITs and InVITs have to pay tax at marginal rates.
Currently, dividend income from REITs and InvITs investment is taxed depending on the nature of income i.e. rental yield, capital appreciation and interest income.
Since REITs and InVITs have to disburse 90% of net distribution cash flow as dividends to unitholders, it cannot retain dividends and offer growth option to its unitholders.
In the Union Budget 2020-21, the government has proposed to remove DDT and shifted the burden of tax from companies to investors. This means, investors receiving dividends will have to pay marginal rate of taxation increasing the effective tax outgo for individual in higher tax slabs.
Since most investors in REITs and INVITs are institutional investors and HNIs, post tax income from REITs and InVITs will reduce for them.
Dwijendra Srivastava, Chief Investment Officer (Debt), Sundaram MF said that REITs and InVITs have sought clarification in this regard. He said, “I think the dividend distributed through REITs and InVITs will be taxable like other dividend offering schemes. If this is so, many investors will be discouraged to invest in these instruments.”
Mahendra Kumar Jajoo, Head - Fixed Income, Mirae Asset MF believes that the move will make such investment options less attractive for investors.