How Reit proceeds get taxed for NRIs?

I am an NRI (non-resident Indian) and my brother is a resident. We both hold units of Embassy Park Reit. We have received various distributions from Embassy Park during FY 2023-24, the latest in February 2024. The distributions are interest, dividend and repayment of debt. There has been TDS (tax deducted at source) on distributions such as interest and dividend but at different rates for him and me. My brother mentions that though TDS has been different on some incomes, the eventual tax treatment would be the same in both our hands. Is this true?

—Name withheld on request 

It is true that TDS rates on interest and dividend income are different for a resident and a non-resident unitholder. TDS rate on interest income as well as dividend distribution to a resident unitholder of Reit (Real Estate Investment Trust) is typically 10% whereas TDS rate on interest distribution to a non-resident unitholder is 5% and TDS rate on dividend distribution to a non-resident unitholder is 10% respectively.

Read more: Investors should take ownership of their investments

When it comes to tax liability, though interest income and dividend income from Reit is taxable at applicable slab rates for a resident unitholder, it is not the same for a non-resident unitholder. Non-resident unitholder bears 5% tax liability on interest distribution from Reit whereas dividend distribution from Reit is taxed at 20% for such non-resident unitholder.

Moreover, repayment of debt does not attract any TDS obligation whether it is for distribution to a resident or a non-resident unit holder. Any repayment of debt up to issue price of Reit units is not taxed as income but gets reduced against the cost of acquisition for future calculation of capital gains. Whereas repayment of debt beyond the issue price of Reit units is to be taxed under the head ‘Income from Other Sources’ at the applicable slab rates. This tax treatment remains the same between a resident and a non-resident unitholder.

Harshal Bhuta is partner at P.R. Bhuta & Co. Chartered Accountants.