INTRODUCTION<br /><ul><li>A real estate investment trust or REIT is a tax designation for a corporate</li></ul>entity investing in real estate. The purpose of this designation is to reduce or<br />eliminate corporate income taxes.<br /><ul><li>REITs originated in the US and became popular in many countries across the</li></ul>globe.<br /><ul><li>The REIT structure was designed to provide a real estate investment structure similar to the investment structure mutual funds provide in stocks. REITs operate on the principle of a mutual fund.
Many private equity investors in real estate projects in India were eagerly waiting for the REITs and REMFs to take off, so that they could get an exit option once their investments mature</li></li></ul><li>INTRODUCTION<br /><ul><li>Just like mutual funds collect money from investors and deploy it into equities and bonds, REITs deploy investors' money into real estate assets. These trusts invest mainly in commercial property and pay the rent collected from properties to shareholders as dividend.
REIT investment returns in Asia are about 6-12%, higher than the yields on</li></ul>government bonds. REITs in Japan, Hong Kong and Singapore offer dividend<br />yields that are over 5% higher than 10-year government bonds<br /><ul><li>A company must distribute at least 90 percent of its taxable income to its</li></ul>shareholders each year to qualify as a REIT.<br /><ul><li>Most REITs pay out 100 percent of their taxable income. In order to maintain</li></ul>its status as a pass-through entity. A pass-through entity does not have to pay<br />corporate federal or state income tax -- it passes the responsibility of paying<br />these taxes onto its shareholders.<br />
Types of REIT’s<br />Equity REITs: Equity REITs invest in and own properties (thus responsible for<br />the equity or value of their real estate assets). Their revenues come principally from their properties' rents.<br />Mortgage REITs: Mortgage REITs deal in investment and ownership of<br />property mortgages. These REITs loan money for mortgages to owners of real<br />estate, or purchase existing mortgages or mortgage-backed securities. Their<br />revenues are generated primarily by the interest that they earn on the mortgage loans.<br />Hybrid REITs: Hybrid REITs combine the investment strategies of equity<br />REITs and mortgage REITs by investing in both properties and mortgages<br />
Requirements to qualify<br />A corporation must meet several other requirements to qualify as a REIT and gain pass-through entity status. They must:<br /><ul><li>Be structured as corporation, business trust, or similar association
Pay dividends of at least 90 percent of the REIT's taxable income
Have no more than 50 percent of its shares held by five or fewer individuals</li></ul> during the last half of each taxable year<br />• Hold at least 75 percent of total investment assets in real estate<br />• Have no more than 20 percent of its assets consist of stocks in taxable REIT<br /> subsidiaries<br /><ul><li>Derive at least 75 percent of gross income from rents or mortgage interest</li></li></ul><li>Requirements to qualify<br />At least 95 percent of a REIT's gross income must come from financial<br />investments (in other words, it must pass the 95-percent income test). These include include rents, dividends, interest and capital gains.<br /> In addition, at least 75 percent of its income must come from certain real estate sources (the 75-percent income test), including rents from real property, gains from the sale or other disposition of real property, and income and gain derived from foreclosure of property.<br />
How does a REIT’s work?<br /><ul><li>An equity REIT typically pools money from various investors (unit-holders) to acquire commercial real estate and manages it.
The rent collected from this real estate is the income generated by the REIT. This income, after accounting for operating and non operating expenses along with one offs is then distributed to the unit holders
In the US, a REIT should annually distribute 90% of its taxable income to</li></ul>shareholders in the form of dividends to qualify as a REIT apart from other investment requirements.<br /><ul><li>In a sector specific REIT, diversification could be seen in asset quality,</li></ul>geographical location and tenant base. For example, a REIT investing in office buildings would have tenants ranging from banks to software companies to tackle the issues of vacancy in the current scenario where banks are closing their offices.<br />
Reits in india<br />In India, there is no legislation yet for the establishment of REITs. SEBI<br />has outlined draft regulations for these trusts in December 2007. This got<br />indefinitely postponed with the current market conditions tending to be more bearish than expected, this legislation seems to have taken a back seat.<br />
Reits in india<br />Experience so far in the markets where REITs have been in operation for many years have shown that REITs help in:-<br /><ul><li>providing retail investors, a regulated platform to invest in the real estate sector(which may otherwise not be available due to the scale and sophistication necessary for direct investments);
create a healthy secondary market for real estate assets;
circulate equity capital as developers / investors churn assets;
set quality standards in terms of acceptable levels of investment grade assets; and
enhance the level of professional property management.</li></li></ul><li>Reitssebi draft regulations<br />Definition of a REIT according to SEBI Draft<br /><ul><li>REIT is a trust registered under the Indian Trusts Act, 1882 with the object of organising, operating and managing real estate collective investments.
Real estate is defined to include land or buildings (irrespective of whether freehold or leasehold), car parks and other assets incidental to ownership of real estate such as fittings, fixtures, etc. However, REITs are not permitted to acquire vacant land.</li></ul>Who can set up a REIT<br />Person setting up a REIT is referred to as a Sponsor. As such,<br />any person could act as a Sponsor to the REIT.<br />
REIT’s SEBI draft regulations<br />Management of REITs<br />REITs would be managed by its trustees. Trustees could be a<br />scheduled bank, trust company which is a subsidiary of a bank, a<br />public financial institution, insurance company or a body<br />corporate. Individuals cannot act as trustees.<br />Schemes floated by REITs<br />REITs could float schemes which need to be close-ended<br />schemes for the purpose of raising public money to invest in<br />income-generating real estate properties.<br />
REIT’s SEBI draft regulations<br />Management of schemes<br />Schemes of REITs would be managed by real estate investment<br />management companies (‘REIMCs’). REIMCs are companies<br />incorporated in India with the object of organising, operating and<br />managing a real estate investment scheme.<br />Eligibility conditions for registration of REITs/REIMCs<br />Minimum net worth criteria of Rs 5 crores (initial net worth<br />requirement of Rs 3 crores to be increased to Rs 5 crores over a<br />period of 3 years from registration).<br />At least 50 percent of trustees/ directors, as the case may be, to be independent.<br />Management of REIMCs and REITs to be independent of each<br />other.<br />
REIT’s SEBI draft regulations<br />Requirements for floating Schemes<br /><ul><li>Scheme would need to obtain rating from a credit rating agency.
Scheme would need to be appraised by an appraising agency.
Scheme should not provide for guaranteed or assured returns.</li></ul>Investment restrictions on REITs/ schemes of REITs<br /><ul><li>Scheme can invest only in income generating real estate properties. The scheme may invest in partly developed properties subject to</li></ul>transaction value not exceeding 20% of the net asset value (‘NAV’) of the relevant scheme.<br /><ul><li>REITs under all its scheme cannot invest more than 15% in any single real estate project and not more than 25% of all the real estate projects developed, marketed, owned or financed by a group of companies</li></li></ul><li>REIT’s SEBI draft regulations<br /><ul><li>Scheme is prohibited from investing in vacant land or engaging</li></ul>in property development activities.<br /><ul><li>Property of each scheme should be clearly identifiable and held</li></ul>separately from property of the REIMCs and any other scheme.<br /><ul><li>Transfer of funds from one scheme to another scheme is not</li></ul>allowed except at the time of termination of the scheme with<br />prior approval of the Board.<br />Restrictions on Borrowings<br /><ul><li>Borrowings shall not exceed 20% of the value of total assets of</li></ul>the scheme<br /><ul><li>Scheme is allowed to mortgage or pledge its assets to secure</li></ul>such borrowings.<br />
REIT’s SEBI draft regulations<br />Restrictions on REIMCs<br /><ul><li>Undertaking any activity other than that of managing scheme.
Launching scheme for investment in securities. Investing in schemes floated by it unless specifically disclosed in the offer document and no fees are charged on such investments in that scheme.</li></ul>Valuation of Scheme Properties<br /><ul><li>Every scheme would be required to appoint an independent</li></ul>property value.<br /><ul><li>Valuation of property to be undertaken based on Valuation Standards on Properties published by concerned Indian Institute or International Valuation Standards by International Valuation Standards Committee.
Scheme to disclose its NAV annually based on the property valuer’s report.</li></li></ul><li>REIT’s SEBI draft regulations<br /> Governance aspects<br /> Onerous requirements on REITs to ensure protection of unit holders include:<br /><ul><li>Convening regular meetings of the unit holders apart from meeting of trustees twice in each quarter
Review on a quarterly basis activities carried out by REIMCs
Annual requirement to have each scheme’s financial statements audited, scheme appraised by appraising agency and rated by credit rating agency.
Ensuring legal title to real estate property and contracts.</li></ul>Other aspects<br /><ul><li>Financial year for all the schemes shall end on 31 March of each</li></ul>year.<br /><ul><li>Books of accounts, records to be maintained for a period of 5</li></ul>years after the close of each scheme.<br /><ul><li>Auditors for REIMCs and scheme of REITs are not to be</li></ul>associated and are ones who are empanelled with the SEBI.<br />
Issues and perspectives<br />Absence of specific basis of Taxation<br /><ul><li>Currently, there are no specific provisions governing the basis of taxation of a REIT.
Tax laws would have to be amended to provide for a basis of taxation of REITs as well as unit holders.
Ideally, REITs should be pass-through for tax purposes.
Pass-through status not only offers the benefit of taxing income from a source only once, but also taxes the income only at the unit holders’ end
Guidance could be drawn from the basis of taxation of REITs in Singapore, U.S., Japan, Australia, etc. where REITs are specifically tax exempt (subject to conditions).</li></li></ul><li>Issues and perspectives<br />High transaction costs could impact returns<br /><ul><li>Stamp duties and property taxes are an integral part of any real estate transaction in India.
Effective transaction costs generally range from 5% to 15% due to stamp duties and registration costs.
In view of this, partial or complete exemption from stamp duty on purchase / sale of real estate by REITs maybe considered as it would reduce acquisition costs for REITs and enhance returns to investors.</li></ul>Absence of regulatory framework supporting foreign investment in REITs<br /><ul><li>There is no guidance on which category of investors can invest in REITs.
To bring in parity with Mutual Funds, the relevant FEMA regulations would need to be amended.</li></li></ul><li>Issues and perspectives<br />Application of ‘Net Worth’ definition to REIT<br /><ul><li>Proposed definition of ‘Net Worth’ applies more in the context of a company and it would be challenging to apply the same to a trust.
The definition, which is based on value of paid up equity capital and free reserves, needs to extend to include corpus of trust and initial settlement amount.</li></ul>Incentive fees and carried Interest<br /><ul><li>Under the Draft Regulations, REIMC are entitled to an annual percentage- based remuneration from the Scheme which should be stated in the Offer Document.
Incentive fees and carried interest are currently not contemplated.
This is not in line with some other international REIT models.</li></li></ul><li>Issues and perspectives<br />Flexibility to extend or rollover the Scheme<br /><ul><li>Draft Regulations provides for compulsorily termination of a</li></ul> scheme on expiry of the duration specified in the scheme.<br /><ul><li>Flexibility should be built in for extending or rolling over the</li></ul>scheme.<br />
<ul><li>The Singaporean S-REIT system is considered one of the most established in Asia. S-REITs are closed-end funds that utilize collective investment schemes.
A recent trend towards specialization of S-REITs has led to the establishment of S-REITs dedicated to sub-sectors such as hotels, retail properties and healthcare facilities.
Other requirementsof S-REITs include a minimum of 35% of total assets invested in real estate.
At least 70% of total assets invested in real estate related assets and a minimum of 90% of taxable income distributed to investors.
S-REITs are not permitted to actively engage in real estate development activities but may invest in development projects up to a certain degree.</li></li></ul><li>Just like REITs in other parts of the world, Singapore REITs have different “asset makeup,”<br />These include industry REITs, which focus:<br />Commercial properties, hospital, health care REITs, specializing in medical facilities, and apartment or residential REITs.<br />Singapore’s REIT market has taken advantage from government actions, like a tax waiver on REIT income. REIT income was paid to individual investors and a reducing up to half of taxes for foreign institutional investors. The central bank may also move up the balance limit for REIT to 60 percent of their assets from 35 percent. Like that they will have the possibility to borrow much more for property purchases.<br />REITS under Singapore model are differentiated on the aspects of:<br />- Yield<br />- Asset type<br />- Regional operational strategy<br />These help the investor to choose the potential benefit as well as risk and volatility, included in fund offer.<br />
Legal Framework<br />• Securities and Futures Act (Act) and Regulations<br />• Code on Collective Investment Schemes (Code) published by MAS(Monetary Authority of Singapore)<br />• Property Trust Guidelines (belonging to Code)<br />• Listing Manual of the Singapore Exchange (SGX ST)<br />• Trust Companies Act Restrictions<br />Trustee<br />• Independent trustee<br />• Functions and responsibilities: Code, Act: Regulations, Trust Companies Act, Trust Deed and , common law principles (principles of equity)<br />Trust Manager<br />• At least 5 years experience managing property trusts<br />• Required track record in Property Trust Guidelines<br />• Listing Manual prescribes functions<br />• If the manager will manage a portfolio of securities: a Capital Markets Service Licence from MAS will be required<br />
Trust Deed<br />• Act and Regulations spells out basic requirements<br />• Deals with the creation of the trust, terms of appointment of trustee and trust manager and details of the unit trust scheme<br />• To be approved by MAS<br />Miscellaneous<br />• Prospectus required in case of public offers in Singapore, in accordance , with the Act and Regulations and registered with MAS beforehand and reviewed by SGX SGX-ST<br />• Prohibited activities: property development and investing in development securities, mortgages (except mortgage -backed securities)<br />• At least 35% of unit proceeds must be invested in property within 24 months from launch and at least 70% invested in real estate related assets<br />• Investments must be properly diversified<br />• Maximum 35% of value of the property may be borrowed, except in case of ‘A’ rating by credit rating agency, in which case higher<br />• If rating will be influenced by credit enhancement: MAS to be consulted<br />• Related party transactions rules to be observed<br />
Taxation<br />• Listed property trusts are taxable and unit holders tax exempt<br />• Tax ruling: trust is transparent and unit holders are taxed at prevailing income tax<br />rate on distribution<br /><ul><li> Foreign corporate taxed at concessionary 10% income tax rate with effect from 18 Feb 2005</li></ul>• Foreign individuals not taxed<br />• Local parties taxed at normal income tax rate of 20 % (but they can deduct related expenditure to generate income)<br />Singapore properties<br /><ul><li>No stamp duty on transfer of real property to REIT
Capital gains for income tax uncertain Capital uncertain
Capital gains treatment for REIT uncertain Capital uncertain
REIT distributions out of taxed income of REIT are tax exempt
REIT distributions out of rental income: individuals tax free; foreign corporate</li></ul> taxed at 10% WHT and local corporate 20%.<br /><ul><li>REIT distributions out of untaxed gains: same potentially.</li></li></ul><li>Investment restrictions<br />At least 70% of total assets must be invested in real estate or real estate-related securities and at least 35% of the property fund’s deposited<br />property should be in-vested in real estate. Investments can be made in real estate, mortgage-backed securities, other property funds, assets which are incidental to the owner-ship of real property, listed and unlisted debt securities and listed shares of properly companies and cash or cash equivalents.<br />Investment in uncompleted non-residential developments may not exceed 20% of the value of total assets.<br />Not more than 5% of total assets can be invested in the listed shares of property and non-property companies or in listed or unlisted debt securities of one single issuer.<br />
Geographic restrictions<br />None in Singapore model, Hong Kong and South Korea.<br />In Japan, More than 50% of total shares of the J-REIT must be offered in Japan in order to qualify for tax deduction.<br />borrowing restrictions<br />Gearing is limited to 35% of total assets unless borrowings used rate A or above by Fitch Inc., Moody’s or Standard or Poor’s or credit rating of fund is at least A by one of these rating agencies.<br />
Shareholders restrictions<br />None<br />Earning payout<br />Required to distribute at least 90% of taxable income each year<br />on operative income. No requirements for capital gain on disposed in-vestments. No depreciation.<br />
Tax treatment<br />Tax treatment at the level of REIT<br />Income tax: not taxable at trustee level to the extent of taxable income distributed.<br />No capital gains tax.<br />70% on distributions to non-resident corporate unit holders<br />TAX treatment at the shareholder’s level:<br />S-REITs established as a unit trust are tax transparent if they distribute over 90% of income.<br />S-REIT dividends are ex-empted from tax for individuals. Local and overseas corporate unit holders are taxed on income distributions at 20%.<br />
Tax treatment<br />Mandatory listing:<br />Yes for S-REITs established under a corporate structure<br />Special listing requirements: Minimum asset size of S$ 20m if denominated in Singapore Dollars.<br />At least 5.000 shareholders before listing and at least 25% of units must be held by at least 500 public share-holders.<br />No. Of entities: 5 S-REITs listed on Singapore Stock Exchange<br />
Australia has a mature and increasingly sophisticated REIT market, which ischaracterized by strong but flexible regulation with a focus on disclosure.<br />The Australian REIT market is the largest in Asia and the second largest inthe world after the United States.2 REITs (commonly referred to as “listedproperty trusts” or “LPTs” in Australia)3 play a very important role in theAustralian market. LPTs are one of the largest sectors on the AustralianStock Exchange Limited (ASX) and now account for around 10% of totalmarket capitalization, a much higher level than other Asian markets.<br />
A-REIT’s<br />1) The REIT concept was launched in Australia in 1971. General Property Trust was the first Australian real estate investment trust (LPT) on the Australian stock exchanges (now the Australian Securities Exchange).<br />2) REITs which are listed on an exchange were known as Listed Property Trusts (LPTs) until March 2008, distinguishing them from private REITs which are known in Australia as Unlisted Property Trusts. They have since been renamed Australian Real Estate Investment Trusts (A-REITs) in line with international practice.<br />3) There are now more than 70 A-REITs listed on the ASX, with market capitalization in excess of A$100bn.<br />
A-REIT’s<br />4) Australia is also receiving growing recognition as having the world’s largest REITs market outside the United States. More than 12 percent of global listed property trusts can be found on the ASX.<br />5) A-REITs are traded on market and allow investors to buy an interest in a professionally managed and diversified portfolio of commercial real estate. Investors gain exposure to both the value of the real estate the trust owns, and the regular rental income generated from the properties. A-REIT investments may include the following<br />types of real estate:<br />• Office buildings <br />• Industrial estates<br />• Retail shopping centers<br />• Hotels and pubs and <br />• International (US, Asia, Japan and Europe)<br />
Working of A-REIT’s<br />1) The fund manager selects the investment properties and is responsible for all maintenance, administration, rentals, and improvements. Most property trust managers include properties across a diversity of geographic regions, lease lengths, and tenant types.<br />2) Returns from A-REITs are generated from income and capital growth. Income is generally distributed quarterly or half-yearly while the on-market price may increase as the value of the underlying properties increase over the long-term.<br />
Value achievement through investing in A-REIT’s<br />Regular Income with capital growth<br />The distribution yields on A-REITs are made either quarterly or twice yearly, allowing investors to regulate their cash flow. Apart from distributions, A- REITs also offer the opportunity for capital growth though they have long been viewed as stable income style investments. Rising yields, attractive valuations or movements in other markets, can cause A-REIT prices to rise.<br /> <br />Diversification <br />A-REITs invest across a range of properties in a wide variety of geographic regions, lease lengths and tenant types to decrease investor risk. Investments in A-REITs can therefore be used to further diversify an investment portfolio, providing a greater degree of balance.<br />Liquidity<br />A-REITs can be bought and sold via any stockbroker on ASX and through accredited financial planners, with the proceeds of sales received in three days. Unlike most property investments, part or all of your A-REIT holdings can be sold at short notice<br />
Value achievement through investing in A-REIT’s<br />Low cost exposure to real estate<br />A-REITs offer access to the property market with professional investment management at a relatively low transaction and management cost.<br />Taxation advantages<br />Due to the unit trust structure used by most A-REITs, including the unit trust component of stapled securities, income or distributions paid to investors are untaxed when paid.<br /> The investors will still have to pay tax at such time as they are accessed following the filing of their tax returns.<br />A-REITs also have access to tax concessions like depreciation (capital) allowances, while some of the tax associated with the rental income earned by the A-REIT can be deferred.<br />
Trusts<br />In Australia, REITs have traditionally been structured as unit trusts. There<br />are two main reasons for this:<br />· Capital flexibility. The rules governing return of capital from a trust<br />are less cumbersome than the equivalent rules for companies.<br />· Flow through tax treatment. Trusts that only hold passive<br />investments, rather than carrying on business activities within the<br />trust, enjoy a ‘flow through’ treatment for income tax (if all the trust’s<br />income for the year is distributed to investors, the trust itself does not<br />pay tax and only the investors are taxed).<br />The advantage of flow through taxation is that income and gains derived by<br />the trustee retain their character in the hands of the investors. Therefore, any tax preferences will flow through to the investors. By contrast, a company is a separate taxpayer<br />
.<br />Other key features<br />Other key features of an LPT are similar to the features of REITs in other<br />jurisdictions:<br />· Property. The LPT acquires property (either a diversified portfolio<br />or one focused on a specific sector, such as offices, shopping centres<br />or industrial properties).<br />· Listed Securities. Investors are issued with securities that are quoted<br />on the ASX.<br />· Management. The LPT is typically managed by an external body,<br />called the responsible entity, who provides professional management<br />services for the portfolio (although there are also many instances of<br />internal management).<br />· Distributions. The LPT generally distributes all of its income for<br />each year to investors.<br />· Gearing. The LPT typically carries moderate levels of borrowing.<br />LPTs which operate hotels, car parks, development assets and other “active”<br />businesses, or which have internal management, often have a ‘stapled<br />structure’, which allows passive investment and active management to exist<br />in a single stapled entity.<br />
.<br />Overview of the regulatory regime<br />Most of the rules which are applicable to LPTs are contained in theCorporations Act 2001 and the Listing Rules of theASX. LPTs are also subject to the general law of trusts.<br />
.<br />Corporations Act regulation generally<br />The Corporations Act provides for a national framework of companies, securities, financial products and financial services legislation. The Australian Securities and Investments Commission (ASIC) is the regulator.<br />Since the mid 1990s, the laws governing unit trusts have changed substantially. New chapters have been introduced into the Corporations Act covering establishment and operation of unit trusts such as LPTs.<br />
REMF<br />Real-Estate Mutual Fund (REMFs ́) introduced by Securities and Exchange<br />Board of India (SEBI ) gives options to the investors for investing in real-<br />estate.<br />Before REMFs, through the capital market, money was invested in the equities of real-estate companies and not in real-estate<br />REMF gives an additional mode of raising money through the capital market for the activities in the real-estate sector.<br />These correspond with the Real-estate Investment Trusts in USA and Pool<br />Management Vehicle in U.K which are popular modes of investment in USA<br />and U.K respectively.<br />
INVESTMENTS THROUGH REMF<br />REMFs have been allowed to invest in:<br />1.directly in real-estate properties;<br />2.mortgage backed securities;<br />3.equity shares, bonds, debentures of listed/unlisted companies which deal in properties ;and also undertake property development;<br />REMFs provide better alternative for investors as they have been given a wide opportunity from investing in real-estate properties to equity shares etc. of companies dealing in properties. <br />The investors allowed to invest in real-estate are<br />1. High Net worth Investors (HNWI )<br />2. Foreign Institutional Investors (FII’s )<br />REMFs are still not open for the retail investor.<br />
IMPORTANT CONSIDERATIONS<br />REMFs are governed by SEBI (Mutual Fund) Regulations, 1996 and periodic<br />guidelines issued by SEBI.<br />Like any other mutual fund REMFs should be in the nature of trusts and are<br />required to be registered and they must set up a board of trustees and trustee companies.<br />Asset Management Companies (AMC ) should manage REMFs but cannot act<br />as the trustees of any REMF<br />The net worth of the AMCs should be at least INR 100 million. No trustee of an REMF can be the trustee of any other REMF.<br />
LISTING OF UNITS<br />The units of REMFs have to be compulsorily listed on the stock exchange.<br />The REMF has to appoint a SEBI approved custodian who will act as the<br />custodian of securities.<br />No scheme can be launched by the REMF unless it is approved by the board of trustees.<br />The REMF is required to file the offer document with SEBI. If the draft is<br />approved by SEBI then the AMC can issue the offer document.<br />
Close-ended schemes & regulations<br />SEBI has stipulated that the structure of REMF’sshould be close-ended i.e. schemes with a defined period of maturity and are redeemed at the end of maturity period.<br />Regulations prescribe certain modalities required to be followed in case of close-ended schemes :-<br /><ul><li> The units are required to be listed in a recognized stock exchange within six months of the closing of subscription
No scheme can be open for subscription for more than 45 days
The REMF is required to return the subscription amount to the investors within six weeks from the date of closure if there is over subscription or under subscription
REMF’smust declare the NAV of the funds on a daily basis</li></li></ul><li>Tax implications<br /> The tax liability on the investors and the REMF is governed by the provisions of the Income Tax Act, 1961 (IT Act́).<br />Registered REMFs are exempted from income tax. Moreover, REMFs receives all income without any deduction of tax at source. For distribution of income, the tax liability is under the dividend distribution tax which at present is 16.609%.<br />The investor’s income through an REMF is not liable to tax. However, if the investor sells his units, he is liable to pay capital gains tax on the proceeds of such sale.(Long-term tax – 10% or short-term tax – 30%)<br />