Tax Treatment Differences Between REITs and InvITs in India

Source Of Income

REITs

InvITs

Dividend Income from SPV

• If the SPV does not opt for the concessional tax rate under section 115BAA of the Income Tax Act, the dividend income is exempt in the hands of the REIT unit holders.
• If the SPV opts for the concessional tax rate, the dividend income is taxable for the unitholders at their applicable slab rates.
• Tax Deducted at Source (TDS) is applicable at 10% for resident unitholders if the dividend amount exceeds 5,000 per annum (10,000 from FY 2025-26)

• If the SPV does not opt for the concessional tax rate under section 115BAA of the Income Tax Act, the dividend income is exempt in the hands of the InvITs unit holders.
• If the SPV opts for the concessional tax rate, the dividend income is taxable for the unitholders at their applicable slab rates.
• TDS is applicable at 10% for resident unitholders.

Interest Income From SPV

Interest income received by unitholders from REITs is taxable as per their applicable slab rates. TDS is applicable at 10% if the interest income exceeds 5,000 per annum (10,000 from FY 2025-26 onwards).

Interest income distributed by the InvIT to resident investors is taxable at the applicable slab rates, with a 10% TDS. For non -resident investors, the TDS rate is 5% or as per the Double Taxation Avoidance Agreement, whichever is lower.

Rental Income

Rental Income distributed by REITs is taxed at the applicable slab rates for the unitholder. TDS is deducted at 10% on rental income.

This income is taxable at the maximum marginal rate in the hands of the InvIT. Distributions from this income to unitholders are likely to be taxed at their slab rates.

Capital Gains

Short-Term Capital Gains (STCG): Gains from selling REIT units held for less than one year are taxed at 15% (for transfers before July 23, 2024) or 20% ( for transfers on or after July 23, 2024).

Long-Term Capital Gains (LTCG): Gains from selling REITs unit held for more than one year are taxed at 10% ( for gains up to 1 lakh annually for transfers before July 23, 2024) or 12.5% ( for gains exceeding 1.25 lakh annually for transfers on or after July 23, 2024). Indexation benefits are not available.

Short-Term Capital Gains (STCG): Gains from selling REIT units held for less than one year are taxed at 15% (for transfers before July 23, 2024) or 20% (for transfers on or after July 23, 2024).

Long-Term Capital Gains (LTCG): Gains from selling REIT units held for more than one year are taxed at 10% ( for gains up to 1 lakh annually for transfers before July 23, 2024) or 12.5% (for gains exceeding 1.25 lakh annually for transfers on or after July 23, 2024). Indexation benefits are not available.

Other Income( Including loans repayments from SPVs)

As per the 2023 budget amendments, any income distributed by REITs beyond rent, interest, and dividends is taxable as "income from other sources" at the unitholder's slab rates. If these amounts are not taxed during distribution, they may reduce the cost of acquisition when the unitholder sells their units, leading to higher capital gains.

As per the 2023 budget amendments, any income distributed by REITs beyond rent, interest, and dividends is taxable as "income from other sources" at the unitholder's slab rates. If these amounts are not taxed during distribution, they may reduce the cost of acquisition when the unitholder sells their units, leading to higher capital gains.