Taxation of Real Estate Investment Trusts (REITs) in India
Table of Contents
Overview & Taxation of Real Estate Investment Trusts (REITs) in India
What Are Real Estate Investment Trusts ?
REITs (Real Estate Investment Trusts) are investment vehicles that allow individuals to invest in income-generating commercial real estate—such as office spaces, malls, warehouses—without owning physical property. Real Estate Investment Trusts are an excellent way to diversify a portfolio and gain exposure to India’s commercial real estate market without taking on ownership risks. However, understanding the layered taxation framework is essential for maximizing returns and avoiding surprises at the time of filing. Keep detailed breakup statements issued by the REIT (like Form 64B) and consult your tax advisor before the ITR filing season.
Real Estate Investment Trusts (REITs):
- Operate similar to mutual funds but invest in real estate assets instead of stocks/bonds.
- Pool funds from multiple investors to invest in large-scale properties.
- Offer income via rent, interest, dividends, or capital gains.
Major Indian Real Estate Investment Trusts (REITs):
- Embassy Office Parks REIT
- Mindspace Business Parks REIT
- Brookfield India REIT
- Nexus Select Trust REIT
Regulatory Framework of Real Estate Investment Trusts
Real Estate Investment Trusts and InvITs are regulated by SEBI and structured as trusts. They act as pass-through vehicles to avoid double taxation. However, taxation varies based on Nature of the income and Whether the SPV has opted for the Section 115BAA concessional tax regime, Real Estate Investment Trusts in India are governed by SEBI (REIT) Regulations, 2014. Key entities involved:
- Sponsor: Promotes and sets up the REIT.
- Manager: Manages REIT assets and operations.
- Trustee: Holds assets for the benefit of unitholders; must be independent and SEBI-registered.
What Is a Special Purpose Vehicle (SPV)?
REIT Eligibility Criteria
| Criteria | Description |
| Trust Formation | Must be registered with SEBI as a trust |
| Mandatory Listing | Must be listed on a recognised stock exchange |
| Investment Focus | ≥ 80% in income-generating properties; ≤ 20% in under-construction assets, bonds, etc. |
| Distributions | ≥ 90% of net distributable cash flows must be distributed semi-annually |
| No Cross-Investment | Cannot invest in units of other REITs |
SPV is an Indian company through which REITs hold real estate assets. Eligibility:
- REIT must hold ≥ 50% of SPV’s equity.
- SPV must hold ≥ 80% of its assets directly in properties.
- SPV should not invest in other SPVs and must solely engage in real estate development/ownership.
Benefits of Investing in Real Estate Investment Trusts
- Liquidity: Traded on stock exchanges
- Diversification: Access to high-value commercial real estate
- Transparency & Regulation: SEBI oversight
- Passive Income: Steady income through mandated distributions
Challenges in Real Estate Investment Trusts
- No major tax shelters: Income taxed as regular income in most cases
- Market-linked returns: Sensitive to real estate cycles and interest rates
Taxation of Real Estate Investment Trusts Income (as of FY 2024-25)
Before July 23, 2024:
- STCG @15%
- LTCG @10% (exempt up to ₹1 lakh/year)
Budget 2023 & 2024 Updates
- Budget 2023: Introduced taxation on loan repayment/capital return (previously untaxed) as ‘Income from Other Sources’.
- Budget 2024 (effective July 23, 2024):
- Raised STCG to 20%
- Raised LTCG to 12.5% (with higher exemption)
- Removed indexation benefits for all REIT gains
Types of Income from Real Estate Investment Trusts
| Income Type | Tax Treatment | TDS Provisions | |
| 1. Rental Income (REIT only) | Taxed in hands of unitholder as ‘Income from Other Sources’ at slab rate | 10% TDS | |
| 2. Interest Income | Taxed in hands of unitholder as ‘Income from Other Sources’ at slab rate | 5% TDS (NRI) / 10% (Resident) | |
| 3. Dividend Income | a) If SPV opted for concessional tax (115BAA): Taxable in hands of unitholder as per slab; 10% TDS applies b) If not opted: Dividend is tax-exempt |
10% TDS if taxable | |
| 4. Loan Repayment / Return of Capital | a) Budget 2023: Now taxable as ‘Income from Other Sources’ at slab rate b) If not taxed at distribution, reduces cost of acquisition, increasing capital gains later |
No specific TDS, but must be tracked for cost adjustments |
Dividend Income
| SPV Status | Tax Treatment | TDS |
| Opted for Section 115BAA | Taxable in hands of unitholder as per slab | 10% (if dividend > ₹5,000; ₹10,000 from FY 25-26) |
| Not opted for 115BAA | Exempt for unitholder | No TDS |
Interest Income
- Taxed at slab rates for resident unitholders.
- TDS: 10% (if > ₹5,000; ₹10,000 from FY 25-26)
Rental Income (Real Estate Investment Trusts only)
- Treated as Income from Other Sources
- Taxed at slab rate of unitholder
- TDS: 10%
Capital Gains Tax on Sale of Real Estate Investment Trusts Units
| Holding Period | Before July 23, 2024 | On or After July 23, 2024 |
| Short-Term Capital Gain (≤ 12 months) | 15% (u/s 111A) | 20% (Flat rate) |
| Long-Term Capital Gain (> 12 months) | 10% (Exempt up to ₹1 lakh/year) | 12.5% (Exempt up to ₹1.25 lakh/year) |
| Indexation | Not Available | Not Available |
Capital Gains on Sale of Real Estate Investment Trusts Units
| Type | Holding Period | Tax Rate | Exemption Limit | Indexation |
| STCG | ≤ 12 months | 20% (from July 23, 2024) | None | ❌ |
| LTCG | > 12 months | 12.5% (from July 23, 2024) | ₹1.25 lakh/year | ❌ |
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