Holding Period for REITs Reduced to 12 Months from 36 Months to Qualify as Long-Term Assets: Budget 2024

Budget 2024

With the aim to rationalize and simplify capital gains taxation, the Finance Minister proposed various changes in the Budget 2024-25. In her speech, she stated, “Listed financial assets held for more than a year will be classified as long-term, while unlisted financial assets and all non-financial assets will have to be held for at least two years to be classified as long-term.” Like other listed financial assets such as stocks, real estate investment trusts (REITs) are also listed on the stock exchange. Under the new proposal, investments in REITs will be considered long-term if investors hold the units for more than 12 months, instead of the previous 36 months.

What are REITs?

A REIT (Real Estate Investment Trust) is an investment trust that owns income-generating real estate. In India, REITs are currently allowed to invest only in commercial properties. Similar to mutual funds, REITs pool money from investors to invest in real estate. The advantage of a REIT is that it allows retail investors to invest in commercial real estate, particularly Grade 'A' office spaces that would otherwise be inaccessible to them. So far, four REITs are listed on Indian exchanges: Embassy Office Parks REIT, Mindspace Business Parks REIT, Brookfield India Real Estate Trust and Nexus Select Trust.

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As per industry stakeholders, reducing the holding period to qualify as long-term will significantly boost investments in REITs and bring it at par with other investment avenues. Ramesh Nair, CEO, Mindspace REIT said, “The budget enhances liquidity, boosts transaction volume, and increases investments, making REITs a more attractive asset class compared to other long-term investments. It will appeal to investors seeking quicker returns and attracts short-term investors who may have previously been deterred.”

The industry body Indian REITs Association (IRA), also welcome the decision to reduce the holding period for determining long-term capital gains for business trusts from 36 months to 12 months. The association said in a statement that, “This change addresses a long-standing industry request and enhances liquidity in Indian REITs, making them more effective investment instruments. Previously, investors were required to hold units of business trusts for 36 months to qualify for the long-term capital gains tax rate. This extended holding period often acted as a barrier to investment flexibility and liquidity, particularly in the real estate sector. By shortening the holding period to just 12 months, the Union Budget fosters a more agile investment environment.”