mr. punit shah

International Research Conference II

on

Real Estate Investment Trust (REITs)

Punit ShahPunit Shah

Partner

Co-head of Tax, KPMG India

20 March 2015

REIT structureREIT structureREIT structureREIT structure

SponsorSponsor

REITREITREITREITREITREITREITREIT

Sponsor Contribution

Trustee

© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated

with KPMG International Cooperative ('KPMG International'), a Swiss entity. All rights reserved.


SPV

Real estate assets

BorrowingBorrowingBorrowingBorrowing

Investment

Management agreement

Investors


Investment ManagerInvestment Manager

Units

1

REITREITREITREITREITREITREITREITInvestment

Management

fees

Option for Transfer of

property to REIT

Option 1

Transfer

directly held properties in

exchange of REIT units

Taxability on transfer of property to REIT Taxability on transfer of property to REIT Taxability on transfer of property to REIT Taxability on transfer of property to REIT

REIT

Sponsor Group

(could be a

Developer)

REIT Units in exchange of properties

Option 1



Option 2

Transfer of shares in SPV

holding properties in


SPVs

REIT

Sponsor Group

(could be a

Developer)

REIT Units in exchange of shares in SPV

Option 2

Note:

Option for Transfer of

property to REIT

Taxability in the hands of sponsor

Option 1

Transfer of

directly held properties in


• No specific exemption on such transfer

− Taxable as per normal provisions at

20%/30%*

Taxability on transfer of property to REIT Taxability on transfer of property to REIT Taxability on transfer of property to REIT Taxability on transfer of property to REIT

Option 2

Transfer of shares in SPV

holding properties in


• Such transfer is specifically exempt.

− Taxability deferred to the time of sale

of REIT units

− MAT Applicable

• Holding period and cost of shares

available as holding period and cost of

REIT units

Note: *The above rates are exclusive of surcharge and cess

24

Income**

Rental

income on

property

directly

owned by

REIT

Interest from

SPV

Taxability of ongoing incomes Taxability of ongoing incomes Taxability of ongoing incomes Taxability of ongoing incomes

REIT

Sponsor / Unit

holders

Distribution of income

Distribution of income to unit holders

Interest / Dividend

Rent / Capital gains on sale



Dividend

from SPV

Capital gains

on Sale of

property /

SPV Shares

Capital gain

on sale of

REIT units***

Other Income

SPVs

* Final taxability @ 5% subject to specified conditions**The above rates are exclusive of surcharge and cess*** Sold on stock exchange and subject to STT paid

Rent / Capital gain

REIT Level SPV Level Unit Holders WHT

• Exempt

• WHT on

distribution at

10% to R & at

applicable

rate for NR

NA

• Taxable (Income

to included in the

Total income of

Unit holders)

• Tenant /

lessee not

to withhold

tax on

rental

payment to

REIT

Interest from • Exempt • Interest

payment to

REIT allowed

as deduction

• For R – To be

included in total

income; For NR*

– WHT @ REIT

level is final

• No WHT at

SPV level

• REIT to

withhold tax

@ 10% for level is final

taxability ie.5%@ 10% for

R and @

5% for NR

• Exempt • DDT at

17.65%

• Exempt • NIL

Capital gains

SPV Shares

• Sold by REIT

- Taxable at

REIT level

(20%/30%)

• Sold by SPV

– Taxable at

SPV level

(20%/30%)

• Exempt • NA

Capital gain

REIT units***

• NA • NA • LTCG-Exempt

(Subject to MAT)

• STCG - Taxable

@15%,

• NA

Other Income • Tax at 30% • NA • Exempt • NIL

25

Key challenges from a tax perspective Key challenges from a tax perspective Key challenges from a tax perspective Key challenges from a tax perspective

• Tax deferral not available for direct transfer of property to the REIT

• MAT applicable (Twice) for the sponsors

• REIT unit to be held more than 36 months for the gain to be qualified as LTCG

• No pass through for offshore investors with respect to capital gains

• DDT / Big dampener in SPV structure



• DDT / Big dampener in SPV structure

• Interest deductibility to REIT

Key challenges from a tax perspective Key challenges from a tax perspective Key challenges from a tax perspective Key challenges from a tax perspective

Tax deferral not available for direct transfer of property to the REIT

MAT applicable (Twice) for the sponsors

REIT unit to be held more than 36 months for the gain to be qualified as LTCG

No pass through for offshore investors with respect to capital gains

4

Thank youThank youThank youThank youThank youThank youThank youThank you

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© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights

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mr. punit shah

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