Income from Real Estate Investment Trusts (REITs) and It’s Taxation in India

What Are REITs?

Real Estate Investment Trusts (REITs) are professionally managed investment vehicles that allow individuals to invest in income-generating real estate without actually buying or managing property. Think of them as mutual funds — but for real estate.

 You invest.
  They manage the real estate.
  You earn income from rent, interest, or capital gains.

Popular Indian REITs include:

• Embassy Office Parks REIT
  
  
• Mindspace Business Parks REIT
  
  
• Brookfield India REIT
  
  
• Nexus Select Trust REIT
  
  

These REITs invest in office spaces, malls, warehouses, and more.

What’s a Special Purpose Vehicle (SPV)?

SPVs are companies created for holding REIT properties.
Here’s what qualifies an SPV:

• REIT holds ≥ 50% equity in it
  
  
• 80% of its assets are in real estate
  
  
• It doesn’t invest in other SPVs
  
  
• It focuses only on owning/developing real estate
  
  

REIT Eligibility & Structure (As per SEBI Regulations, 2014)

To qualify as a REIT, an entity must:

1. Be a trust registered with SEBI
   
   
2. Have a trustee (SEBI-approved and independent)
   
   
3. Invest mainly in commercial real estate
   
   
4. Raise funds through initial or follow-on public offers
   
   
5. Be listed on a stock exchange
   
   
6. Invest ≥ 80% in income-generating assets
   
   
7. Distribute ≥ 90% of net distributable cash flow
   
   
8. Not invest in other REITs
   
   

Taxation of REIT Income in India

India follows a pass-through taxation system for REITs. The REIT may be tax-exempt, but you as an investor pay taxes on the income you earn. Here’s the breakdown:

1.  Dividend Income

• Taxable at slab rates if SPV opts for Section 115BAA
  
  
• Exempt if not opted
  
  
• TDS:
  
  
  • 10% if dividend > ₹5,000/year (₹10,000 from FY 2025–26)
    
    

2.  Interest Income

• Fully taxable at slab rates
  
  
• TDS:
  
  
  • 10% if interest > ₹5,000/year (₹10,000 from FY 2025–26)
    
    

3.  Capital Gains

• Short-Term (STCG):
  
  
  • Units held < 1 year → Tax @ 20%
    
    
• Long-Term (LTCG):
  
  
  • Held > 1 year → Tax @ 10% on gains above ₹1.25 lakh/year
    
    
  • No indexation benefit
    
    

4.  Rental Income

• Taxed at slab rates
  
  
• 10% TDS applicable
  
  

Pros of REIT Investments

• Liquidity: Easy to buy/sell on the stock market
  
  
• Low entry barrier: Start with small capital
  
  
• Steady returns: Regular income distributions
  
  
• No property management hassle
  
  

Challenges of REITs

• Market risks: Real estate cycles affect returns
  
  
• Limited tax benefits: Most income is taxable
  
  
• No control over property decisions or sale timelines
  
  

Conclusion

REITs are ideal for investors who want exposure to real estate without the responsibilities of property ownership. But taxation can be a key factor in determining net returns.

📝 Tip: Always consult a tax advisor to optimise your REIT income and compliance strategy.