FPIs in a bind over higher tax on interest income from REIT investments

If an REIT distributes interest income received from SPV, it is taxable as 'interest income' in the hands of the unit holder at 20% plus surcharge and education cess

Foreign portfolio investors (FPIs) are in a spot over the tax to be paid for interest income earned from investments in real estate investment trusts (REITs).

Several FPIs have taken a conservative view and started paying a higher tax of 20 per cent for such income. This is because of the amendment in the definition of ‘securities’ in the Securities Contracts Regulation Act with effect from April 1, 2021, which now extends to the units of REITs as well.

FPIs have the highest institutional holding in all the three REITs listed on the bourses currently. Experts reckon that higher taxes