Understanding Income from REITs and Its Taxation in India: A Guide for Smart Investors

 

Understanding Income from REITs and Its Taxation in India: A Guide for Smart Investors

By RealTaxIndia| Updated JUN 17, 2025

Real Estate Investment Trusts (REITs) have revolutionized the way individuals invest in commercial real estate in India. These investment vehicles allow individuals to own a piece of large-scale income-generating real estate projects without having to purchase or manage properties themselves. While REITs offer diversification and regular income, understanding their taxation is critical to optimizing your returns.

In this article, brought to you by Real Tax India — your trusted partner in taxation and business compliance — we will explore how income from REITs is taxed in India and what investors should keep in mind.

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What Are REITs?

REITs are similar to mutual funds, but instead of pooling investments into stocks or bonds, they pool funds into income-generating real estate such as office buildings, shopping malls, warehouses, and more. These trusts are managed by professional entities and regulated under SEBI (REITs) Regulations, 2014.

Notable REITs in India include:

Investors can earn through dividends, interest, or capital gains — without ever owning or managing a physical property.

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Structure: Special Purpose Vehicle (SPV)

Most Indian REITs operate through Special Purpose Vehicles (SPVs). An SPV is an Indian company in which:

Who Can Set Up a REIT?

To qualify as a REIT under SEBI guidelines, the trust must meet several conditions:

  1. Trust-Based Structure: Must be established as a trust with a sponsor, trustee, and manager.
  2. SEBI Registration: Must be registered with SEBI and comply with regulatory requirements.
  3. Asset Allocation: At least 80% of assets should be in completed, rent-generating commercial real estate.
  4. No Cross-Holding: Cannot invest in other REITs.
  5. Mandatory Listing: Units must be listed on a recognized stock exchange.
  6. Income Distribution: Must distribute at least 90% of its net distributable income to unit holders.
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Taxation of REIT Income in India

One of the most important aspects of REIT investment is how it is taxed. The Indian government aims to avoid double taxation, so either the REIT or the investor is taxed — not both. Here’s a breakdown of how different types of income are taxed:

1. Dividend Income

🔹 TDS:

2. Interest Income

🔹 TDS:

3. Capital Gains

  • Short-Term Capital Gains (STCG) (held for <1 year): Taxed at 20%.
  • Long-Term Capital Gains (LTCG) (held for >1 year): Taxed at 12.5% if gains exceed ₹1.25 lakh annually. No indexation benefits apply.

4. Rental Income

🔹 TDS:

Benefits of Investing in REITs

✅ High Liquidity
REITs are listed on major stock exchanges, offering ease of entry and exit.

✅ Portfolio Diversification
 Get exposure to premium commercial real estate without owning property.

✅ Regular Income
 With mandatory income distribution, you get steady cash flows.

✅ Lower Entry Barrier
 Invest with as little as ₹10,000, compared to lakhs or crores needed for direct property investment.

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Challenges in REIT Investment

❌ No Tax Deductions
 Unlike investments in ELSS or PPF, REIT investments do not offer tax deductions.

❌ Market Risk
 Real estate markets are cyclical. Economic downturns or rising interest rates may reduce rental income and asset values.

How Real Tax India Can Help

Understanding taxation on REITs can be complex. From dividend treatment to capital gains and interest income — each type requires careful planning. That’s where Real Tax India steps in.

With over a decade of experience in:

We ensure you’re not leaving money on the table.

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📲 Contact Real Tax India:

Our experts are here to guide you through every financial and compliance decision.

Final Thoughts

REITs are a game-changer in the Indian real estate investment space, offering an excellent blend of regular income and long-term capital appreciation. However, tax implications can significantly affect your net returns. Understanding the fine print — or consulting professionals like Real Tax India — can help you stay compliant while maximizing your earnings.

If you’re considering investing in REITs or already hold units, take a moment to review your tax strategy. Smart tax planning today leads to better returns tomorrow.

Disclaimer:
 The information provided in this blog is for educational purposes only and should not be considered as financial or investment advice. The views are personal and belong to the author.


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