This explainer series on SM REITs is brought to you by Property Share, where we break down everything you need to know about SM REITs—making real estate investment simple and accessible. Explore the various sections to learn about the fundamentals of SM REITs, their unique benefits and potential risks, how they are different from regular REITs, how to invest and how to evaluate them, along with their taxation norms.
This explainer series is also available in the form of a video.
SM REITs, or Small and Medium Real Estate Investment Trusts, are regulated by SEBI and provide an opportunity to invest in real estate without directly owning properties.
The taxation for SM REITs differs depending on if the investor is an Indian resident or NRI.
Taxation for Resident Investors
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Income Distribution:
Income distribution from SM REITs is divided into interest income, dividend income, and other distributions.
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Interest Income: Taxed at applicable income tax slab rates
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Qualified Dividend Income: Tax-exempt
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Disqualified Dividend Income: Taxed at individual rates with TDS applied
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Any other income taxable in the hands of Scheme: Tax exempt
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Other Distributions: Amounts exceeding issue price are taxable
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Capital Gains on Sale of Units:
Taxation on the sale of SM REIT units depends on the holding period:
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Long-Term Capital Gains (LTCG): More than 12 months - Taxed at 12.5% on gains above ₹1.25 lakhs
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Short-Term Capital Gains (STCG): 12 months or less - Taxed at 20%
Taxation for Non-Resident Investors (NRIs)
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Income Distribution:
Similar to resident investors, Income distribution from SM REITs is divided into interest income, dividend income, and other distributions.
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Interest Income: Taxed at 5% with TDS applied
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Qualified Dividend Income: Tax-exempt
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Disqualified Dividend Income: Taxed at individual rates with TDS applied
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Any other income taxable in the hands of Scheme: Tax exempt
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Other Distributions: Amounts exceeding issue price are taxable
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Capital Gains on Sale of Units:
Similar to resident investors, non-resident investors are taxed on capital gains based on the holding period.
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Long-Term Capital Gains (LTCG): More than 12 months - Taxed at 12.5% on gains above ₹1.25 lakhs
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Short-Term Capital Gains (STCG): 12 months or less - Taxed at 20%
Conclusion
To summarize, income distribution and capital gains are taxed differently for resident and non-resident investors. Qualified dividend income is tax-exempt for all investors, while capital gains are taxed based on the holding period. As always, it's advisable to consult a tax advisor to understand the specific implications for your investments.