Understanding REITs and Their Potential
Real Estate Investment Trusts (REITs) allow investors to earn from real estate without owning property. These companies manage portfolios of income-generating properties like commercial buildings, malls, and hotels. By investing in REITs, individuals can participate in real estate ventures without the need to buy or manage properties directly. In India, the REIT market is expanding, with significant potential in commercial real estate, particularly in cities like Bangalore which holds a substantial portion of the market.
How to Earn Profits from REITs
Investors can profit from REITs in two main ways:
Dividends: By law, REITs must pay out at least 90% of their taxable income as dividends. This means regular income for investors, derived from the rent collected from the properties they own.
- Example: If a REIT has several office buildings rented out, the rent payments contribute to the dividends paid to shareholders.
Capital Appreciation: As the value of the properties or the REIT's portfolio increases, the share price of the REIT may also rise, offering an opportunity for profit when shares are sold at a higher price than purchased.
- Example: If the market value of a shopping mall owned by a REIT increases, the share price of the REIT might also increase, allowing investors to sell their shares for a profit.
In India, investors can choose from four REITs: Embassy REIT, Brookfield REIT, Mindspace REIT, and Nexus Select Trust.
Taxation on REIT Investments
Income from REIT investments is subject to taxation:
- Rental Income: Taxed at the investor's applicable income tax rate. For Non-Resident Indians (NRIs), a 10% tax rate applies.
- Interest Income: Also taxed according to the investor's tax bracket.
- Dividend Income: Taxed at the investor's rate with a 10% Tax Deducted at Source (TDS).
Other income types generated by REITs are exempt from tax, providing a tax-efficient way to earn from real estate investments.
Investing in REITs offers a balanced approach to real estate investment, especially for those seeking diversification and regular income without the complexities of property management.
