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How are the dividends from Reits taxed?


I want to know how dividends from Reit (Real estate investment trust) are taxed, and how to know what tax structure a Reit is using?

—Name withheld on request

As a general concept, Reit is a pass-through vehicle for income-tax purposes and accordingly dividends will be taxed as if the investors have directly earned the same from the underlying special purpose vehicle (SPV).

As per the provisions of the Income Tax Act, 1961, taxation of the dividend income distributed by the Reit in the hands of the unit holder, is dependent upon whether the underlying SPV of the Reit has opted for the concessional tax regime under section 115BAA.

In case the SPV has opted for the beneficial tax regime under section 115BAA, the dividend received by the unitholders is taxable as ordinary income, at the applicable slab rate. Furthermore, in such case, the Reit is required to deduct taxes at the rate of 10% under section 194LBA of the act from the dividend.

In case the SPV has not adopted for the beneficial tax regime under section 115BAA, the dividend income received by the unitholders shall be exempt from tax under section 10(23FD) of the act, in the hands of the unitholder. Also, no taxes will be deducted at source by the Reit.

With regard to the tax structure being used by the underlying SPVs of Reit, the same may be understood through the investment scheme of the Reit or by inquiring with the respective Reit. You may also refer to the financial statements/ investor reports / income distribution letters issued from time to time with regard to the type of incomes earned or distributed by Reit.

I work in a PSU bank and have been allotted shares under Esop scheme, where I will get 2 lakh as profit on its sale. My question is that after paying LTCG of around 20,000 on 2 lakh how should I show the remaining 1.8 lakh in my ITR? Will this amount be exempted from tax or taxed again? If exempted, where can I show it in my ITR?

—Name withheld on request

For determining whether the capital gain is short term or long term, the period of holding is to be construed from the date of allotment of shares. Also, as the shares were received under an ESOP scheme, it is presumed that perquisite tax was paid by you at the time of allotment, in which case, the Fair Market Value (FMV) of the share used for perquisite tax calculation becomes your cost base for the purpose of calculating LTCG.

From a reporting perspective, LTCG on sale of the shares is required to be reported under the specified Capital Gain income schedule in the tax return, in the year of sale. The said schedule would ask for details of Gross Sales Consideration, Expense (if any on transfer of shares), and Cost of acquisition, based on which the form shall calculate appropriate taxable capital gains. Since the required disclosure is already made in respect of sale of shares, no separate reporting is required. Also, as the capital gains is already offered to tax, there should be no further taxation.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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