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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Other Products

Which of the following income from a unit of a Real Estate Investment Trust (REIT) is generally treated as taxable in the hands of the unit holder as 'interest' passed through by the trust?

Interest the REIT receives from its special purpose vehicle is passed through and taxed in the unit holder's hands as interest income. Sale proceeds, repayment of capital and sponsor contributions are not interest pass-through items.

  1. AInterest received by the REIT from its special purpose vehicleCorrect
  2. BSale proceeds of the REIT's building
  3. CFace value of units repaid at maturity
  4. DCapital contributed by sponsors

Explanation

REIT business trusts enjoy pass-through for interest income received from SPVs, which is taxed in the unit holder's hands as interest. Sale proceeds relate to capital gains, and unit face value repayment or sponsor capital is not income of this nature.

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