Quick answer: A REIT or InvIT payout is split into interest, dividend, rent, debt repayment and other income, and each part is taxed differently. Interest and rent are taxed at your slab rate, dividends are exempt from FY 2026-27, debt repayment reduces your cost, and unit sales attract 12.5% long-term or 20% short-term gains tax.
What are REITs and InvITs?
- REIT (Real Estate Investment Trust) — a business trust that owns commercial property such as offices, malls or hotels. The property generates rent.
- InvIT (Infrastructure Investment Trust) — a similar trust that holds infrastructure assets like roads, power lines, pipelines or airports.
Both are regulated by SEBI. They are listed on the stock exchanges, so you can buy and sell units like shares.
The trust generally does not pay tax on pass-through income. Instead, the income keeps its original character and is taxed directly in the hands of the unit holder. This is called pass-through taxation.
How does pass-through taxation work under Section 115UA?
Section 115UA of the Income-tax Act, 1961 introduced the pass-through rule for business trusts. The Income-tax Act, 2025 keeps this same pass-through idea for FY 2026-27.
| Feature | What it means for you |
|---|---|
| Income character | Interest stays interest, dividend stays dividend, rent stays rent. |
| Taxation | Tax is paid by the unit holder, not by the trust, on pass-through income. |
| Distribution requirement | SEBI rules require the trust to pay at least 90% of its net distributable cash flows to unit holders. |
Because the trust does not pay tax on this income, the amount you receive is the amount that is taxed in your return, part by part.
How is each part of a REIT or InvIT distribution taxed?
When a REIT or InvIT declares a payout, the amount is broken down into several components. Each component has its own tax treatment. Never treat the whole payout as one tax-free or one fully taxable amount.
| Component | Tax treatment | Where it is shown in your ITR | TDS (resident) |
|---|---|---|---|
| Interest received from the SPV (special purpose vehicle) | Taxed at your slab rate under Income from Other Sources | Schedule PTI, under Other Sources | 10% |
| Dividend from the SPV | FY 2025-26: exempt only if the SPV did not opt for the 22% corporate tax regime (Section 115BAA). FY 2026-27 onward: exempt regardless of the SPV’s tax regime | Schedule PTI, as exempt dividend income | TDS may still appear on the statement; check Form 64B |
| Rent from property held directly by a REIT | Taxed at your slab rate | Schedule PTI, under House Property | 10% |
| Repayment of debt / return of capital | Not taxed on receipt while total repayments stay below the unit’s issue price. It reduces your cost of acquisition, so future capital gains become larger | Not reported as income. Adjust the cost in the capital gains schedule | No TDS |
| Other income already taxed at trust level | Generally exempt in the unit holder’s hands | Schedule PTI, as exempt income | None |
The trust sends you a Form 64B each financial year. It lists the exact split of the distribution. Use it while filing your return.
What changed for REIT dividends from April 2026?
Until FY 2025-26, a dividend that came from an SPV which had taken the concessional 22% corporate tax option (Section 115BAA) was taxable in your hands. If the SPV had not taken that option, the dividend was exempt.
The Taxation and Other Laws (Amendment) Act, 2026 removed that condition. From FY 2026-27 onward, a qualifying dividend that a business trust distributes is exempt for the unit holder, whatever tax regime the SPV chose.
What stayed the same: interest and rent are still taxed at slab rate, and debt repayment still reduces your cost instead of being taxed at once. What changed: only the dividend condition. Do not read the change as “all REIT payouts are now tax-free” — they are not.
You may still see TDS on the dividend line of a statement. If the dividend is truly exempt, that TDS can be claimed back while filing your return. Check Form 64B before you claim anything.
What is the TDS on REIT and InvIT distributions?
| Recipient | TDS |
|---|---|
| Resident individual unit holder | 10% on the interest and rent components |
| Non-resident unit holder | 5% on the interest component; other components follow the applicable rates |
| Dividend component | No TDS is expected after April 2026 for an exempt dividend, but earlier years and individual statements may still show TDS — check Form 64B |
The trust deducts TDS before crediting the net amount to your demat account. The TDS amount appears in Form 64B. Keep Form 64B handy; you will need it while filing.
What tax applies when you sell REIT or InvIT units?
How long must you hold the units?
- Long-term — units held for more than 12 months.
- Short-term — units held for 12 months or less, with STT paid on the sale.
What are the capital gains rates?
| Holding period | Tax rate | Indexation | Threshold |
|---|---|---|---|
| Long-term | 12.5% on gains above Rs 1,25,000 in a financial year | Not allowed | No tax if your total long-term gains for the year are Rs 1,25,000 or less |
| Short-term | 20% (Section 111A) | Not allowed | No exemption threshold |
The 12.5% long-term rate with the Rs 1,25,000 exemption and the 20% short-term rate follow the Finance Act, 2024 changes that aligned listed business-trust units with listed equity treatment.
How do you compute the gain?
- Sale price — the price you receive on the exchange.
- Adjusted cost of acquisition — original issue price minus any debt repayment or return of capital received during the holding period.
- Capital gain — sale price minus adjusted cost.
If debt repayments received together exceed the issue price, the excess amount is treated as income from other sources (the old Section 56(2)(xii) rule) and taxed at slab rate.
Worked example: Rs 1,00,000 payout in a year
Assume you bought 100 units of a REIT at Rs 1,000 each (total issue price = Rs 1,00,000). In FY 2026-27 the trust distributes Rs 1,00,000 to you, split as follows:
| Component | Amount |
|---|---|
| Interest from SPV | Rs 40,000 |
| Dividend from SPV | Rs 30,000 |
| Rent from property | Rs 10,000 |
| Debt repayment / return of capital | Rs 20,000 |
Step 1 — Tax on each component (at a 30% slab, for illustration)
| Component | Tax treatment |
|---|---|
| Interest (Rs 40,000) | 30% slab = Rs 12,000 tax; TDS of 10% = Rs 4,000 already deducted |
| Dividend (Rs 30,000) | Exempt from FY 2026-27 onward; no tax, but any TDS shown can be claimed back |
| Rent (Rs 10,000) | 30% slab = Rs 3,000 tax; TDS of 10% = Rs 1,000 already deducted |
| Debt repayment (Rs 20,000) | Not taxed now; reduces your cost |
Total tax on interest and rent = Rs 15,000. TDS already deducted = Rs 5,000. Balance payable on this payout = Rs 10,000, before any other income or deductions in your return.
Step 2 — Adjusted cost of acquisition
Original cost = Rs 1,00,000
Less debt repayment = Rs 20,000
Adjusted cost = Rs 80,000
Step 3 — Capital gain if you sell later
Suppose you sell the 100 units for Rs 1,200 each. Sale price = Rs 1,20,000.
Capital gain = Rs 1,20,000 − Rs 80,000 = Rs 40,000.
If you held the units for more than 12 months, this gain is long-term. If your total long-term gains for the year are Rs 1,25,000 or less, no long-term tax is payable on this gain because it sits inside the exemption. Only gains above Rs 1,25,000 for the year are taxed at 12.5%.
If you sell within 12 months, the gain is short-term and tax = 20% of Rs 40,000 = Rs 8,000.
What the example shows
- Immediate tax falls on interest and rent only: Rs 15,000 gross, Rs 10,000 after TDS credit.
- The dividend is tax-free from FY 2026-27 onward.
- Debt repayment is not free money: it lowers your cost and raises the gain when you sell.
How do you report REIT and InvIT income in your ITR?
- Collect Form 64B — it shows the split of the distribution.
- Schedule PTI (Pass Through Income) —
- Enter interest under Income from Other Sources.
- Enter rent under House Property.
- Enter dividend under Exempt Income (if exempt).
- Schedule CG (Capital Gains) —
- Record the sale price and the adjusted cost (original issue price less debt repayments).
- Choose long-term or short-term based on the holding period.
- Cross-check AIS/TIS — the Annual Information Statement will contain the same figures.
- Claim TDS — the TDS shown in Form 64B can be claimed in the TDS schedule.
If you miss any component, the tax department may raise a query later. The single most useful document in the whole process is Form 64B.
REIT units vs direct rental property vs a REIT fund
| Feature | REIT/InvIT units | Direct rental property | REIT mutual-fund route |
|---|---|---|---|
| Yield (gross distribution) | Reported 6.5% – 7.5% | Reported 2% – 3% rental yield | Same underlying assets, but distributions are reinvested inside the fund |
| Tax on distribution | Interest and rent at slab rate; dividend exempt from FY 2026-27 | Rent taxed under House Property | No tax on distributions inside the fund; tax only on redemption, as capital gains |
| Liquidity | Traded on exchanges, easy entry and exit | Low — selling means selling the whole property | Traded like any mutual fund |
| Management | Professional trust manager | Owner manages the property | Fund manager handles the trust units |
| Cost of acquisition | Issue price, reduced by debt repayments | Purchase price, plus stamp duty and registration | NAV; no debt-repayment adjustment |
The yield figures above are reported market ranges, not promises. Actual payouts vary by trust, property and year.
Investors who want regular cash flow and easy exit often prefer listed REIT/InvIT units. Those who want no tax on immediate cash flow may choose a REIT fund, but they must wait for redemption to trigger tax. For a general guide to how fund payouts are taxed, see our article on mutual fund taxation in India. If you sell a property instead and want to save the gain, read about Section 54EC capital gains bonds and F&O trading tax rules for how trading gains differ from investment gains.
Common mistakes investors make
| Mistake | Why it matters |
|---|---|
| Treating the whole payout as tax-free | Only the dividend part (from FY 2026-27) is exempt. Interest and rent are taxed at slab rate. |
| Ignoring the debt-repayment effect | It lowers your cost base. Forgetting this understates future capital gains and can cause a surprise tax bill. |
| Not using Form 64B | Without the split you cannot fill the correct schedules. |
| Assuming an 80C deduction | REIT/InvIT units do not qualify for Section 80C. |
| Forgetting TDS on an exempt dividend | You may claim a refund, but you need to report the TDS in the return. |
Frequently Asked Questions
Are REIT distributions tax-free in India?
No. Only the dividend part is tax-free, and only from FY 2026-27 onward. Interest and rent in the same payout are taxed at your personal slab rate, and debt repayment reduces your cost instead of being taxed at once.
How is REIT dividend taxed from April 2026?
It is exempt for the unit holder, whatever corporate tax regime the underlying SPV chose. This follows the Taxation and Other Laws (Amendment) Act, 2026. TDS may still appear on a statement; check Form 64B and claim it back if the dividend is exempt.
Is interest from a REIT taxed at slab rate?
Yes. Interest passed through from the SPV is taxed under Income from Other Sources at the rate that applies to your total income. The trust deducts 10% TDS for resident investors, which you adjust against your final tax.
What is the TDS on REIT and InvIT distributions?
For resident individuals, 10% is deducted on the interest and rent components. For non-residents, 5% applies to the interest component. An exempt dividend should carry no TDS after April 2026, but always verify against Form 64B.
What tax applies when I sell REIT units?
If you held the units for more than 12 months, long-term capital gains tax is 12.5% on gains above Rs 1,25,000 for the year, with no indexation. If you held them for 12 months or less, short-term gains are taxed at 20% under Section 111A, when STT is paid.
How do I report REIT income in my ITR?
Use Form 64B to break down the distribution. Enter interest under Other Sources, rent under House Property and dividend under Exempt Income in Schedule PTI, and adjust the cost of acquisition for any debt repayment in the capital gains schedule. Cross-check the figures with AIS/TIS.
Do REIT units qualify for 80C deduction?
No. Investments in REIT or InvIT units are not eligible for Section 80C, Section 80CCC or Section 80CCD(1).
Is a REIT fund taxed differently from direct REIT units?
Yes. A REIT mutual fund does not pass the distribution to you, so there is no yearly tax on payouts inside the fund. Tax arises only when you redeem the fund units, and it is treated as capital gains on the redemption.
Official Sources
- Income Tax Department, Government of India — https://www.incometaxindia.gov.in/
- Income-tax e-Filing portal — https://www.incometax.gov.in/
- Securities and Exchange Board of India (SEBI), REIT and InvIT Regulations — https://www.sebi.gov.in/
Reviewed by Asuthod Rathod, CA | Last updated: 3 November 2026
Disclaimer: This article is for general information only and is not personal tax advice. Tax rules change from time to time, and your own position depends on your income, holding period and the trust’s Form 64B statement. Check the current law and consult a qualified tax professional before making an investment or filing decision.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.