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Vijayarajan & Associates - Taxation of Income and Capital Gains from REITs and InvITs in India
REITs and InvITs are SEBI-regulated trusts pooling funds into real estate and infrastructure, taxed under Section 115UA of the Income-tax Act via a pass-through system.
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1. What are REITs and InvITs?
- REITs: Invest mainly in completed, income-generating properties such as commercial offices, IT parks, and malls.
- InvITs: Invest in infrastructure projects like highways, transmission lines, or power projects (completed or under construction).
- Both are listed entities, and their units are tradable on stock exchanges in India.
2. Section 115UA – Core of Business Trust Taxation
Section 115UA ensures clarity on how income from REITs and InvITs is taxed at the trust and unit-holder levels.
Key Provisions:
- Pass-through principle – Income distributed retains the same nature in the hands of unit holders. (E.g., interest received by the trust remains interest income for investors).
- Trust taxation – Income not eligible for pass-through is taxed at the Maximum Marginal Rate (MMR). Capital gains at the trust level are taxed under sections 111A and 112.
- Specified income taxable in hands of investors – Interest/dividend from SPVs [Sec. 10(23FC)] and rental income of REITs [Sec. 10(23FCA)] are taxed directly in the hands of unit holders.
- Disclosure requirement – Trust must furnish a detailed statement (Rule 12CB) to both the unit holder and the Income Tax Department.
3. Taxation of Distributed Income in the Hands of Unit Holders
| Nature of Income | Resident Investor | Non-Resident Investor | TDS (u/s 194LBA) |
| Interest from SPV (Sec. 10(23FC)) | Taxable at slab rates | Taxable @ 5% | 10% (Residents), 5% (Non-residents) |
| Dividend from SPV | Exempt if SPV has not opted for 115BAA; else taxable at slab rates | Taxable @ 20% or DTAA rate; Exempt if not opted | 10% (Residents), 10–20% (Non-residents) |
| Rental Income (Sec. 10(23FCA) – REIT only) | Taxable at slab rates | Taxable @ 5% | 10% (Residents), 5% (Non-residents) |
| Other Income | Taxed at MMR in hands of trust | Exempt (post-trust tax) | — |
4. Capital Gains for Unit Holders (Sale of Units)
When investors sell REIT or InvIT units on a recognised stock exchange:
| Holding Period | Type | Tax Rate | Condition |
| ≤ 36 months Before 23.07.2024, ≤ 24 months if transaction occurs on or after 23.07.2024. | STCG | 15% (u/s 111A) Before 23.07.2024 and 20% if transaction occurs on or after 23.07.2024. | STT paid |
| > 36 months Before 23.07.2024, ≤ 24 months After 23.07.2024 if transaction occurs on or after 23.07.2024. | LTCG | 10% (u/s 112A) exceeding ₹1.25 lakh and 12.5% if transaction occurs on or after 23.07.2024. | STT paid |
If STT is not paid, general capital gains rules apply.
5. Capital Gains Earned at the Trust Level
- Capital gains from sale of assets (real estate/infrastructure) are taxed in the hands of the trust itself.
- Distribution of such post-tax gains to investors is exempt u/s 10(23FD).
6. Compliance & Reporting for REITs/InvITs
- Business trusts must issue annual income statements (Rule 12CB) to unit holders.
- Statement details:
- Type of income (interest, dividend, rent, others)
- Amount distributed
- TDS deducted
- Investors must reconcile with Form 26AS / AIS while filing ITR.
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