Both Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are structured as trusts in India and are regulated by the SEBI. They operate as pass-through entities for certain types of income to avoid double taxation. However, the tax treatment of income distributed to unitholders differs based on the nature of the income and whether the Special Purpose Vehicle (SPV) holding the assets has opted for a concessional tax regime.
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Source Of Income |
REITs |
InvITs |
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Dividend Income from SPV |
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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. |
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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. |
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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. |
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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. |
Key Differences in Tax Treatment
While the overall structure is similar, some nuances exist:
- Nature of Underlying Assets: REITs invest in real estate, while InvITs invest in infrastructure. This difference in asset class can indirectly influence the type and stability of income generated.
- Minimum Investment: Historically, the minimum investment for InvIT IPOs has been higher (Rs 10 lakh) compared to REITs (Rs 50,000 per lot), potentially affecting the investor base and liquidity. However, SEBI is considering aligning the minimum allotment with trading lot sizes, potentially reducing this difference for privately placed InvITs to Rs 25 lakh.
- Liquidity: Generally, listed REITs tend to have higher liquidity compared to listed InvITs due to a broader investor base familiar with real estate.
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