- Date : 24/04/2023
- Read: 3 mins
You’ll have to pay a 10% capital gains tax on the income earned (“loan repayment” component) from Reits/InvITs investments, providing better predictability in tax payment.
Do you want to know how the new Finance Act 2023 affects taxes on your income from other sources, house rents, REITs (Real Estate Investment Trusts), InvITs (Infrastructure Investment Trusts), and others? Will the capital gains tax witness any change after implementing Finance Act 2023? You will get all your questions in the next few sections.
Finance Act 2023: A synopsis
The Lok Sabha (Indian parliament's lower house) has passed multiple amendments to the Finance Bill 2023. The new Finance Act 2023 includes a wide range of tax changes. If you are an investor or a business owner, you should learn about the effects that the Finance Act 2023 will have on:
Your income from other sources
- House rent
- Capital gains tax
- Infrastructure Investment Trusts (InvITs)
- Real Estate Investment Trusts (REITs) and others
Impact of the Finance Act 2023 on REITs and InvITs
The Finance Act 2023 brings changes to the taxation of income from REITs and InvITs. The "loan repayment" component will now be taxed as capital gains tax at a flat rate of 10% for long-term investments of 36 months or more. Earlier, it was taxed based on slab rates, which could be as high as 42%.
Let's consider an example to understand this new taxation regime better. If you sell one REIT unit after 36 months, with a cost of acquisition of Rs. 450 and a selling price of Rs. 600, your capital gains will be Rs. 100 after deducting the "loan repayment" of Rs. 50.
How long will the capital gains tax apply for “loan repayment?”
The Finance Act 2023 has introduced new regulations for the capital gains tax on the "loan repayment" component of REITs and InvITs. The tax will only apply until the total distributed amount of "loan repayment" exceeds the issue price. Experts suggest that this is likely to happen in 15-20 years, providing relief for investors in the long run.
An example of the Embassy REIT with an issue price of Rs. 300 and an average annual "loan repayment" distribution of Rs. 10 demonstrates this. However, the actual time frame may vary depending on the REIT or InvIT's distributions.
Also Read: Top 6 financial goals for better financial planning
Impact of the Finance Act 2023 on house rent and income from other sources
The Finance Act 2023 has revamped the taxation on house rent allowance and life insurance payouts. House rent allowance can now be excluded from total income, while life insurance payouts of over Rs. 5 lakhs will be considered income and taxed accordingly. In case of the insured person's death, previous tax exemptions will still apply.
The Takeaway
The Finance Act 2023 brings significant changes to the taxation regime of REITs, InvITs, house rent allowances, and life insurance policies. Investors in REITs and InvITs will pay capital gains tax on the "loan repayment" component until it exceeds the issue price. The Act also changes the taxation of life insurance payouts and allows taxpayers to exclude house rent allowance from their total income for income tax purposes.
Related Artice: These sectors can make the most out of the Union Budget 2023
Do you want to know how the new Finance Act 2023 affects taxes on your income from other sources, house rents, REITs (Real Estate Investment Trusts), InvITs (Infrastructure Investment Trusts), and others? Will the capital gains tax witness any change after implementing Finance Act 2023? You will get all your questions in the next few sections.
Finance Act 2023: A synopsis
The Lok Sabha (Indian parliament's lower house) has passed multiple amendments to the Finance Bill 2023. The new Finance Act 2023 includes a wide range of tax changes. If you are an investor or a business owner, you should learn about the effects that the Finance Act 2023 will have on:
Your income from other sources
- House rent
- Capital gains tax
- Infrastructure Investment Trusts (InvITs)
- Real Estate Investment Trusts (REITs) and others
Impact of the Finance Act 2023 on REITs and InvITs
The Finance Act 2023 brings changes to the taxation of income from REITs and InvITs. The "loan repayment" component will now be taxed as capital gains tax at a flat rate of 10% for long-term investments of 36 months or more. Earlier, it was taxed based on slab rates, which could be as high as 42%.
Let's consider an example to understand this new taxation regime better. If you sell one REIT unit after 36 months, with a cost of acquisition of Rs. 450 and a selling price of Rs. 600, your capital gains will be Rs. 100 after deducting the "loan repayment" of Rs. 50.
How long will the capital gains tax apply for “loan repayment?”
The Finance Act 2023 has introduced new regulations for the capital gains tax on the "loan repayment" component of REITs and InvITs. The tax will only apply until the total distributed amount of "loan repayment" exceeds the issue price. Experts suggest that this is likely to happen in 15-20 years, providing relief for investors in the long run.
An example of the Embassy REIT with an issue price of Rs. 300 and an average annual "loan repayment" distribution of Rs. 10 demonstrates this. However, the actual time frame may vary depending on the REIT or InvIT's distributions.
Also Read: Top 6 financial goals for better financial planning
Impact of the Finance Act 2023 on house rent and income from other sources
The Finance Act 2023 has revamped the taxation on house rent allowance and life insurance payouts. House rent allowance can now be excluded from total income, while life insurance payouts of over Rs. 5 lakhs will be considered income and taxed accordingly. In case of the insured person's death, previous tax exemptions will still apply.
The Takeaway
The Finance Act 2023 brings significant changes to the taxation regime of REITs, InvITs, house rent allowances, and life insurance policies. Investors in REITs and InvITs will pay capital gains tax on the "loan repayment" component until it exceeds the issue price. The Act also changes the taxation of life insurance payouts and allows taxpayers to exclude house rent allowance from their total income for income tax purposes.
Related Artice: These sectors can make the most out of the Union Budget 2023
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