Knowledge Centre

As of February 2026, REITs and InvITs collectively manage assets worth ₹9.50 lakh crore in India. More investors are flocking to them for steady income and portfolio diversification. But a key question is always: how is this income taxed?

This guide, prepared by Finstreet India Investment Services LLP — one of the best tax consultants for alternative investments — answers exactly that.

1. What are REITs and InvITs?

Think of a REIT (Real Estate Investment Trust) as a company that owns big commercial properties — office parks, malls, warehouses, data centres — and lets you, the everyday investor, own a small piece of those properties by buying its units on a stock exchange.

 

An InvIT (Infrastructure Investment Trust) does the same thing, but for infrastructure assets — highways, power transmission lines, gas pipelines, and telecom towers.

 

Both are regulated by SEBI (Securities and Exchange Board of India) and are listed on the NSE or BSE, so you can buy and sell their units just like shares. They hold their assets mostly through Special Purpose Vehicles (SPVs) — think of SPVs as the actual subsidiary companies that legally own the roads or buildings.

 

2. Why a good Investment?

These trusts are legally required to distribute at least 90% of their net distributable cash flows (NDCF) to investors — at least twice a year. This is why investors love them: regular, predictable income. But that income comes with tax obligations you must understand.

 

3. Taxation: Pass-Through Status

Under the Income Tax Act, both REITs and InvITs are classified as ‘business trusts’ and enjoy pass-through status.

Pass-through status means: the trust itself does NOT pay income tax on the income it earns. Instead, that income ‘passes through’ to you, the unit-holder, and you pay tax on it.

Furthermore, the nature of income stays the same as it passes through. If the trust earned dividend income from its SPV, you will also receive it and be taxed on it as dividend income. If it earned interest, you are taxed on interest. This is called the ‘same nature’ rule.

 

4. Types of Income from REITs & InvITs – and How each is Taxed

Income Type	Tax Rate (Residents)	TDS (Residents)	TDS (NRIs)
Interest Income	Income Tax Slab Rate	5%	5% / DTAA Rate
Dividend Income	Income Tax Slab Rate	10%	10% / DTAA Rate
Rental Income	Income Tax Slab Rate*	10%	Slab Rate / DTAA
Return of Capital	Taxable only if it exceeds the Issue Price.	No TDS	No TDS

 

 

1. Interest Income

This is the most common component of REIT/InvIT distributions. The trust lends money to its SPVs, and the interest received is passed on to you.

• Example:

You hold 500 units of a REIT. You receive a distribution of ₹40 per unit = ₹20,000 total. The trust tells you (via Form 64B) that ₹20 per unit (₹10,000 total) is interest income. If you’re in the 30% tax bracket, you’ll pay ₹3,000 in tax on this component. TDS of 5% (₹500) would already have been deducted, leaving ₹2,500 to pay at filing time.

 

2. Dividend Income

When an SPV earns profits and pays dividends to the trust, and the trust passes this on to you as dividend, it is taxed as dividend income in your hands.

Note: There is no minimum threshold for TDS deduction on REIT/InvIT distributions — unlike regular company dividends where TDS kicks in only above ₹5,000. Every rupee of dividend distributed by a REIT/InvIT is subject to TDS.

 

3. Rental Income (REITs only)

Some REITs directly own properties (not through an SPV). When these properties generate rent, and the trust distributes it to you, it is treated as rental income.

• Tax: Taxed at your slab rate under ‘Income from House Property’ (if direct rent received by REIT) or Rate ‘Income from Other Sources’ (if indirect rent received by REIT through SPV).
• Deductions Available: If taxed under ‘House Property’, you can claim the standard deduction (30% of net annual value) and deduction for interest on borrowed capital. This can meaningfully reduce your taxable amount.

 

Note: Where the REIT holds property through an SPV (not directly), the rental income at the SPV level is taxed there, and what reaches you is a dividend distribution — not rent.

 

4. Return of Capital / Debt Repayment

This is the most complex and often misunderstood component. Sometimes the trust repays debt or returns capital to unit-holders — not as a profit, but as a return of your original investment.

 

The tax rule works as follows:

• The issue price of your units (the original price when the units were first issued, not the price you paid on the market) is a protected amount.
• Distributions that are classified as return of capital / debt repayment are NOT immediately taxable, up to the issue price.
• Any amount received over and above the issue price (cumulative, including all such distributions over the years) becomes taxable as income.
• Additionally, the return-of-capital amounts received reduce your cost of acquisition for capital gains calculation when you eventually sell your units.
• Example:

 

Issue Price per unit = ₹100

Market price you paid = ₹130 (irrelevant for this calculation)

 

Year 1 Distribution (debt repayment): ₹30 per unit

  → Issue price remaining: ₹100 - ₹30 = ₹70 | Taxable this year: ₹NIL

 

Year 2 Distribution (debt repayment): ₹40 per unit

  → Issue price remaining: ₹70 - ₹40 = ₹30 | Taxable this year: ₹NIL

 

Year 3 Distribution (debt repayment): ₹50 per unit

  → Issue price exhausted after ₹30; excess ₹20 is TAXABLE as income this year.

 

Year 4: You sell the unit at ₹150.

  → Adjusted cost = ₹130 (purchase price) - ₹100 (total return of capital received) = ₹30

  → Capital Gain = ₹150 - ₹30 = ₹120 per unit (taxed as LTCG or STCG depending on holding period)

Key Takeaway: Return of capital defers the tax, it does not eliminate it.

 

5. Capital Gain: When you Sell your Units

When you sell your REIT or InvIT units on the stock exchange, the profit or loss is a capital gain or capital loss. The tax rate depends on how long you held the units and whether the units are listed or unlisted.

 

• Listed REIT/InvIT Units (Traded on NSE/BSE)

 

Holding Period	Type of Gain	Tax Rate (FY 25-26)
Up to 12 months	Short-Term Capital Gain	20%
More than 12 months	Long-Term Capital Gain	12.5% on gains above ₹1,25,000(no indexation)

 

• Unlisted REIT/InvIT Units

 

Holding Period	Type of Gain	Tax Rate (FY 25-26)
Up to 24 months	Short-Term Capital Gain	Taxed at normal slab rate
More than 24 months	Long-Term Capital Gain	12.5% flat (no indexation)

 

• The ₹1,25,000 Exemption: How it Works

The ₹1,25,000 LTCG exemption applies across all your listed equity-type investments in a financial year — including equity shares, equity mutual funds, and listed REIT/InvIT units.

 

Example: You have ₹70,000 in LTCG from equity shares and ₹80,000 in LTCG from REIT units. Total LTCG = ₹1,50,000. Exempt amount = ₹1,25,000. Taxable LTCG = ₹25,000. Tax = ₹25,000 × 12.5% = ₹3,125 (plus surcharge & cess).

 

5. Tax Deducted at Source (TDS)

Before your REIT or InvIT transfers income to your account, it deducts TDS — a form of advance tax. This is not an additional tax; it is a credit you claim when filing your Income Tax Return (ITR).

 

Type of Income	TDS Rate for Residents	TDS Rate for NRIs
Interest Income	5%	Slab Rate/DTAA rate
Dividend Income	10%	10%/DTAA rate
Rental Income (REIT)	10%	Slab Rate/DTAA rate
Return of Capital (non-taxable portion)	No TDS	No TDS
Capital gain (on sale of units)	No TDS	20% in case of STCG (up to 12 months) 12.5% in case of LTCG (more than 12 months)

6. Form 64B

Every year, REITs and InvITs issue Form 64B to all unit-holders. Think of it as your tax cheat sheet for REIT/InvIT income.

 

Form 64B provides a complete, category-wise breakdown of all distributions you received during the financial year:

 

How much was interest

How much was dividend

How much was rental income

How much was return of capital or debt repayment

What adjustments to make to your cost of acquisition

 

You must use this form to correctly fill out your Income Tax Return. Without it, you risk misclassifying your income, paying the wrong tax amount, or receiving a defective return notice from the Income Tax Department.

 

7. How to report REIT / InvIT Income in your ITR

Filing your ITR correctly is non-negotiable. REITs and InvITs require more careful reporting than regular equity or mutual fund investments. Here’s a step-by-step guide:

• Step-1: Use the right ITR Form

You CANNOT use ITR-1 (Sahaj) if you have REIT/InvIT income. Use:

ITR-2: If you are a salaried individual or HUF with no business income.

ITR-3: If you have business or professional income.

• Step-2: Report Income under ‘Pass Through Income’

REIT/InvIT income must be reported under the special ‘Pass Through Income’ category, not as regular income. Use Schedule PTI — Pass Through Income details from business trust or investment fund as per Section 115UA.

Report the trust’s name, PAN, and income received under each category (interest, dividend, rent, capital gains) separately for each trust.

If you receive income from multiple REITs/InvITs, report each trust separately. Do not club income from different trusts together.

• Step-3: Report Capital Gains in Schedule CG

Any capital gains from selling your units go in Schedule CG — Capital Gains. Separate entries for STCG and LTCG. Use the adjusted cost of acquisition (after reducing return-of-capital amounts) for accurate computation.

• Step-4: Claim your TDS Credit

Verify all TDS deducted against your PAN in Form 26AS and the Annual Information Statement (AIS). Claim TDS as credit in your ITR. If TDS is higher than your actual tax liability, you are entitled to a refund.

 

⚠️ Watch Out: A Common ITR Filing Mistake

If the income you report in your Computation of Income does not match what you have disclosed in Schedule PTI, your ITR return will fail validation and will NOT be successfully uploaded.

 

Even if it somehow gets uploaded, a mismatch will lead to a defective return notice, requiring you to file a revised return — causing delays and possible interest on tax dues.

 

Finstreet India Investment Services LLP’s tax filing experts ensure every number matches perfectly across all schedules before your ITR is filed.

 

8. Capital Losses from REITs / InvITs: Can you Set them Off?

What if the market falls and you sell your REIT/InvIT units at a loss? Good news: losses from REIT/InvIT units can be set off against gains from other investments, subject to rules.

Loss Type	Can be Set-Off against	Carry Forward Period
Short Term Capital Loss	ANY capital gain	Up to 8 Assessment Years
Long Term Capital Loss	Long Term Capital Gains ONLY	Up to 8 Assessment Years

 

To carry forward any capital loss to future years, you must file your ITR before the due date (typically July 31 for individuals). If you miss the deadline, you permanently lose the right to carry forward the loss — even if no tax is payable. Never miss this deadline.

 

9. REITs vs InvITs: Are they taxed differently?

The tax treatment of REITs and InvITs is broadly similar under the Income Tax Act — both are business trusts with pass-through status. The main difference is structural:

• REITs can distribute rental income (from directly held properties). InvITs generally do not have this component.
• SEBI recently reclassified REITs as ‘equity’ instruments for mutual fund investment purposes, while InvITs remain ‘hybrid’. This does not change the Income Tax treatment for individual investors.
• Both are taxed identically on interest, dividend, capital gains, and return of capital distributions.

Finstreet Advice: The choice between investing in REITs or InvITs should be based on the underlying asset class, yield, credit quality, and your investment goals — not tax treatment alone.

 

10. Conclusion: Smart Investing means understanding your taxes

REITs and InvITs have opened up a world of possibility for Indian investors — providing access to large-scale real estate and infrastructure assets with relatively small capital, steady distributions, and stock-exchange liquidity. As of 2025, they collectively manage nearly ₹10 lakh crore in assets, and this number is growing.

 

But with opportunity comes responsibility — the responsibility to understand how your income is taxed, to file your returns correctly, and to plan your investments with full awareness of the tax implications. The difference between a good REIT/InvIT investor and a great one often comes down to tax planning.

 

At Finstreet India Investment Services LLP, we make that easy for you. Whether you’re a first-  time retail investor, an HNI with a large REIT portfolio, or an NRI navigating cross-border tax rules, our team of expert tax consultants is here to guide you every step of the way.