The author is an experienced content writer and editor. She specializes in simplifying complex regulatory developments across tax, law, and finance for professionals and businesses. Her expertise spans domestic and international taxation, VAT, and financial regulations, with a focus on India, the UAE, and global markets. Views expressed are personal and not necessarily the views of PrimeInvestor. This article is educational in nature .Consult an expert for your own tax and regulatory needs.
Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have quietly become a significant force in India’s investment landscape. As of October 2025, these investment vehicles collectively manage assets worth Rs 9.25 lakh crore—a figure that reflects their growing appeal among Indian investors.
REIT & InvIT – Quasi-equity income generating options
If you’ve been exploring investment options beyond traditional stocks and mutual funds, you’ve likely come across REITs and InvITs. Perhaps you’re already investing in them, or maybe you’re still trying to understand what makes them different. Either way, you’re looking at an asset class that has carved out a unique space in the market.
What makes REITs and InvITs particularly attractive is their income distribution model. Unlike regular companies that may or may not pay dividends, these trusts are structured to distribute a significant portion of their income to investors regularly. This creates a steady income stream, making them appealing to those seeking cash flows alongside potential capital appreciation.
However, it’s important to understand that while REITs and InvITs offer income-oriented returns, they can trade on stock exchanges like equity shares and carry similar market risks. Their unit prices can fluctuate based on market conditions, interest rate movements, and property or infrastructure sector dynamics. So while you benefit from regular distributions, you’re also exposed to equity-like volatility.
This write-up aims to demystify REITs and InvITs for you, with a particular focus on how income from these investments is taxed and reported.
Understanding REITs and InvITs
Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are pooled investment vehicles that raise capital from investors and make investments in the real estate or infrastructure sectors respectively. REITs primarily invest in income-generating real estate assets while InvITs are focused on infrastructure assets such as roads, highways, infrastructure, and energy projects. They generally make investments through special purpose vehicles (SPVs) through they may hold some properties directly.
Both entities are governed by dedicated SEBI regulations and are considered as “business trusts” for income tax purposes. Accordingly, income generated by investors from REITs and InvITs is accorded a similar tax treatment.
Certain REITs and InvITs may be listed and publicly traded, thus introducing liquidity in the market. Resident as well as non-residents investors can invest in these asset classes.
At a macro level, REITs and InvITs are emerging as an alternate investment asset class for investors. SEBI intends to increase retail participation in these asset classes through several measures to make them more retail-friendly and enhance liquidity. As a recent initiative, SEBI amended its regulations to reclassify REITs as “equity” instruments for the purposes of mutual fund and specialized-fund investments while InvITs continue to be treated as “hybrid” instruments. The industry has welcomed the move and described it as a significant milestone.
Taxation for Investors – General Principles
#1 Pass Through Status
REITs and InvITs are considered as business trusts under the Income Tax Act and are accorded a pass-through status. In simple words, it means that income earned by the trusts will not be taxed in the hands of the trusts; it will be taxed in the hands of the unit-holders/investors. Such income is taxable in the hands of the unit-holders unless specifically exempted.
Further, the nature of income taxable in the hands of the unit-holders will be the same as for the trust, i.e., dividend earned by the trust from its SPV will be taxed as dividend in the hands of the unit-holders too.
#2 Income Classification & Tax Rates
Income from REITs and InvITs is distributed in the form of interest, dividend, rent or repayment of debt / capital. It shall be taxed under the respective income head. Further, any gains made on the disposal or transfer of units are considered as capital gains and taxed accordingly.
The tax rates applicable to such income depends on the tax status of the unit-holders, i.e., whether residents or non-residents, whether senior citizens or not. Further, some individuals may be taxed at a higher rate depending on the slab rates and surcharge applicable to them.
The detailed tax treatment is explained in the coming paragraphs. All tax rates mentioned in this article are for FY 2025-26 must be increased by the applicable surcharge and cess.
#3 Tax Deduction at Source
At the time of filing your tax returns, you may observe that there is a tax deducted by your REIT or InvIT. This tax or TDS is nothing but an advance payment of tax against income distributed by REITs or InvITs and can be claimed as a credit against the final tax liability.
There is no minimum threshold for deduction of TDS on income distributed by REITs / InvITs. The TDS rates are different for resident and non-resident investors and depend on the nature of income distributed. The specific TDS rates are explained in the coming paragraphs under each income category.
#4 Annual Statement
At every financial year-end, REITs and InvITs issue an annual statement to unit-holders in Form 64B. It provides the full break-up of distributions—interest, dividend, rent, other income, and repayment of capital. This statement helps investors apply the correct tax treatment and make accurate cost of acquisition adjustments.
#5 REITs and InvITs vs AIFs
Investors often get perplexed on tax treatment of income from REITs and InvITs vis-a-vis income generated from Alternate Investment Funds (AIFs) – Category I, II or III.
While this article talks about taxation of investments in REITs and InvITs, it is important to note that REITs and InvITs are not classified under AIF Category I, II or III, as they all are governed by SEBI regulations separate from those applicable to AIFs. Further, the tax treatment of REITs / InvITs (considered as business trust) under the Income Tax law is different from that of AIFs.
Non-resident unit-holders can claim benefits under applicable tax treaties if the treaty rates are lower than domestic tax rates. However, India’s TDS rates of 5% on interest and 10% on dividends are already quite competitive and, in many cases, may match or even be lower than what most tax treaties offer.
Taxation of Rental Income
Rental income distributed by a REIT, where the trust directly owns the underlying property, is taxable as rental income in the hands of unit-holders. Where the REIT holds property through an SPV and receives dividend from it, the distribution is treated as dividend, not rent. Such income is taxed at slab rates under “Income from House Property” or “Other Sources” for both residents and non-residents.
If taxed as House Property income, deductions for interest on borrowed capital and the standard deduction are available.
TDS is 10% for residents. For non-residents, tax is withheld at slab rates, which may be reduced under a tax treaty. Eligible non-residents may also apply to the tax authorities for a lower or nil deduction certificate by submitting the required documents.
Taxation of Capital Gains
Capital gains from REITs and InvITs may arise in two situations:
- when the trust sells shares of its SPVs and earns capital gains; or
- when you sell your units in the trust.
In both cases, the tax rates depend on whether the units are listed or unlisted. The same rates apply to resident as well as non-resident investors, though non-resident investors may benefit from lower tax rates under a tax treaty.
For listed units, the tax rates are as follows:
- long term capital gains (LTCG) if held > 12 months: taxed at 12.5% on gains exceeding INR 1,25,000 without indexation; and
- short term capital gains (STCG) if held ≤ 12 months: taxed at 20%.
Likewise, the tax treatment for unlisted units is as follows:
- LTCG if held > 24 months: taxed at a 12.5% flat rate, with no indexation; and
- STCG if held ≤ 24 months): taxed at the investor’s normal slab rate.
Taxation of Other Distributions
Distributions by REITs and InvITs often include components other than interest, dividend, or rent — for example, repayment of SPV debt, return of capital, or other surplus transfers.
The Budget 2023 initially proposed taxing all such distributions, including return of capital, as “Income from Other Sources” at the applicable tax rates. However, following industry representations, the rule was eased. Now, only the portion of these distributions that exceeds:
- the issue price of the units
- and (distributions considered as interest, dividend or rent — the “specified sum” — is taxable.
Let’s understand the taxation of other distributions with the help of an example.
Assumptions:
- Issue price per unit (COA) = Rs 100. The issue price remains the same for all investors who may acquire the units at different prices.
- For the sake of simplicity, let’s say the fund distributions in Year 1 to 3 are only “repayment of debt / return of capital.”
- Unit is sold in Year 4 at Rs 150. There are no additional distributions in Year 4 before sale.
You may observe that the issue price of Rs 100 is not taxed; only the distributions over and above the issue price are taxed. Thus, the law strikes a balance — protecting genuine return of capital from immediate taxation, but bringing real “gains” into the tax net.
Taxation of other distributions is slightly complicated and requires keeping detailed records. The trust provides the relevant information in Form 64B which helps in the calculation of taxable and non-taxable components of other distributions.
Reporting in Tax Returns
At every financial year-end, REITs and InvITs issue an annual statement to unit-holders in Form 64B. It provides the full break-up of distributions—interest, dividend, rent, other income, and repayment of capital. This statement helps investors apply the correct tax treatment and make accurate cost of acquisition adjustments.
The tax return forms require a detailed disclosure of income from REITs and InvITs, for instance:
- income from REITs and InvITs must be reported in the tax return under the category of “Pass Through Income” separately for each income category;
- exempt income be reported in the relevant schedule; and
- in Schedule PTI – “Pass Through Income details from business trust or investment fund as per section 115UA, 115UB”, details of the business trust, its PAN, income received and offered to tax under different categories must also be reported.
Ideally, if you earn interest income from two different REITs or InvITs, it is better to report each source separately rather than clubbing them. If the figures in your Computation of Income do not match the disclosures in Schedule PTI, the return may fail validation at the time of upload. Even if it is accepted, the mismatch can lead to a defective return notice, requiring you to file a revised return.
Reporting becomes more complex when you receive income taxable under different heads from multiple trusts. Proper source-wise disclosure helps avoid errors and ensures smooth filing.
Conclusion
Many retail investors and family foundations invest in REITs and InvITs to diversify their portfolios and gain exposure to India’s growing real estate and infrastructure sectors. Indeed, these instruments involve high risk akin to equity investments.
Being a distinct investment class, the tax treatment of investments in REITs and InvITs is also different. Moreover, it varies depending on the nature of distribution and the residential status of the investor. Although Form 64B issued annually by the trust provides a detailed income breakup, investors and tax advisors must ensure that each component is reported under the correct tax head in the income tax return.
Non-resident investors who intend to claim treaty benefits must note that obtaining a lower deduction certificate (LDC) is not straightforward. It requires timely filing of the application, proper documentation, and a valid Tax Residency Certificate (TRC) from the country of residence. The application must be submitted well in advance so the certificate can be shared with the REIT/InvIT before distributions are made. In practice, non-residents may be required to apply for LDC every year.
It is also important for investors to keep the trust updated on their residential status to enable appropriate TDS deduction. This is particularly relevant for individuals working in global roles whose residency may change over time.
