Taxation Of REITs In India

When it comes to investing in property without actually owning one, Real Estate Investment Trusts (REITs) stand out as an attractive option. Yet, the taxation of REITs in India plays a decisive role in shaping how rewarding these investments can truly be.

In this blog, we will uncover the details of how REITs are taxed in India. 

Is Income from REITs Taxable?

In India, REITs are structured as pass-through entities under Section 115UA of the Income Tax Act. This means that the income earned by the REIT is not taxed at the trust level. 

Instead, it is passed on to the unitholders, who are then taxed based on the nature of the income received.

So, income from REITs is taxable in India, and the nature of the income determines how it is taxed:

• Dividend Income: Taxable as per the applicable income tax slab rates.
  
• Interest Income: Taxable as per the applicable income tax slab rates. A 10% TDS is applicable if the interest income exceeds ₹5,000 in a financial year.
  
• Rental Income: Treated as “Income from Other Sources” and taxed as per the applicable income tax slab rates.
  
• Capital Gains: Taxed based on the holding period of the REIT units.

Recent Changes in REIT Taxation

In the Union Budget 2025, the government introduced the following changes:

• Tax Rebate: Under the new tax regime, resident individuals with total taxable income up to ₹12 lakh are eligible for a full tax rebate (i.e., no income tax payable).

However, this rebate does not apply to “special incomes” such as capital gains (LTCG or STCG) that are taxed at concessional rates.

• TDS on Interest: The limit for TDS on interest for senior citizens has been doubled from ₹50,000 to ₹1 lakh.
• TDS on Rent: The annual limit for TDS on rent has been increased from ₹2.40 lakh to ₹6 lakh.

These changes aim to provide relief to individual taxpayers and enhance the attractiveness of REITs as an investment option.

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What Is the Tax Rate on REITs?

The tax rates on income from REITs in India are as follows:

1. Short-Term Capital Gains (STCG): If REIT units are sold within 12 months, gains are taxed at 20% (flat rate).
   
2. Long-Term Capital Gains (LTCG): If REIT units are sold after 12 months, gains are taxed at 12.5% if the gains exceed ₹1.25 lakh in a financial year.

Let’s take a practical scenario. 

Suppose you sell REIT units and make a gain of ₹2 lakh after holding them for more than 12 months. 

In that case, ₹75,000 of the gain will be exempt, and ₹1.25 lakh will be taxed at 12.5%, resulting in a tax of ₹15,625.

Taxation of REIT Dividends in India

Dividend income from REITs is subject to tax in the hands of the investor. People often wonder how often REITs pay dividends in India, as this helps in planning cash flows, anticipating income, and managing tax liabilities.

Most REITs distribute dividends quarterly or semi-annually, giving investors a steady income stream and making it easier to estimate expected returns.

The tax treatment depends on whether the Special Purpose Vehicle (SPV) has opted for the concessional tax regime under Section 115BAA.

• Case 1: If SPV has opted for Section 115BAA

Dividend income is taxable in the hands of the unitholder as per their applicable income tax slab rates. Additionally, a 10% Tax Deducted at Source (TDS) is applicable if the dividend exceeds ₹5,000 in a financial year.

• Case 2: If SPV has not opted for Section 115BAA 

Dividend income is exempt from tax in the hands of the unitholder. No TDS is deducted by the REIT.

For instance, if you receive ₹6,000 as dividend income from a REIT where the SPV has opted for Section 115BAA, ₹5,400 will be taxable in your hands (assuming you’re in the 30% tax bracket), and ₹600 will be deducted as TDS.

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Taxation of REIT Income for Non-Resident Investors

For Non-Resident Indians (NRIs) and foreign investors, the taxation of REIT income is as follows:

• Dividend Income: Taxed at 20%. However, this rate may be reduced under the Double Taxation Avoidance Agreement (DTAA) between India and the investor’s country of residence.
  
• Interest Income: Taxed at 5% under Section 194LD.
  
• Capital Gains: Same as for resident investors. STCG is taxed at 20%, and LTCG is taxed at 12.5% if the gains exceed ₹1.25 lakh in a financial year.

Let’s say if an NRI receives ₹8,000 as dividend income from a REIT, ₹6,400 will be taxable in their hands (assuming the DTAA rate is 20%), and ₹1,600 will be deducted as TDS.

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If you are interested in investing in REITs in India, then begin your journey now. To start, begin the process of opening a Demat account with a reliable stockbroker.

Still confused about choosing the right stockbroker? Fill in your details in the form below:

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Conclusion

Understanding the taxation of REITs in India is crucial for investors to make informed decisions. The tax treatment varies based on the nature of the income and the investor’s status (resident or non-resident). By staying informed about the tax implications, investors can optimize their returns from REIT investments.

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FAQs

Q1. How are dividends from REITs taxed in India?

Dividends from REITs are taxed as per your income tax slab. If the Special Purpose Vehicle (SPV) has opted for Section 115BAA, a 10% TDS is applied if the dividend exceeds ₹5,000 in a financial year.

Q2. What is the tax rate on capital gains from REITs in India?

1. Short-term capital gains (STCG): Taxed at 20% if REIT units are sold within 12 months.

2. Long-term capital gains (LTCG): Taxed at 12.5% if units are held for more than 12 months and gains exceed ₹1.25 lakh in a financial year.

Q3. Is REIT income taxable for NRIs in India?

Yes, for NRIs, dividend income is taxed at 20%, interest income is taxed at 5%, and capital gains are taxed the same as for residents, with STCG at 20% and LTCG at 12.5%.