Real Estate Investment Trusts (REITs) have transformed how Indians invest in large commercial properties. With just a few thousand rupees, you can earn regular income, dividends, and capital appreciation—without buying physical real estate.
But REIT income is not taxed the same way. It has multiple components, and each is treated differently under Indian tax laws.
This blog breaks down all types of REIT income and how each is taxed, with simple tables and updated 2026 rules.
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Income from REITs in India can be in the form of dividends, interest, rental income, and capital gains. Dividends are tax-free if the REIT SPV hasn't opted for the new 22% tax regime. Interest and rental income are fully taxable at slab rates. Capital gains on sale of REIT units are taxed at 15% (STCG) and 10% (LTCG above ₹1 lakh).
What Is a REIT and How Do Investors Earn Money?
A Real Estate Investment Trust (REIT) owns income-generating commercial properties such as:
Office spaces
IT parks
Shopping malls
Warehouses
Hotel assets (hybrid REITs)
REITs distribute 90% of their net income to investors, making them ideal for passive income.
Investors earn through:
Dividends
Interest income
Rental income
Capital gains (when selling units)
Types of REIT Income & Their Taxation
1. Dividend Income from REITs
This is the most common payout.
Taxation Rule (2026):
| Scenario | Dividend Tax Applicability |
|---|---|
| SPV did NOT opt for 22% corporate tax regime | Dividend is tax-free |
| SPV opted for 22% corporate tax regime | Dividend taxable at investor’s slab rate |
TDS:
No TDS on dividend income from REITs.
2. Interest Income from REITs
REITs receive interest from Special Purpose Vehicles (SPVs), which they pass on to investors.
Taxation:
Interest income is fully taxed at your slab rate.
TDS:
TDS @ 10% is applicable before payout.
3. Rental Income From REITs
REITs earn rent from tenants; a portion is passed to unit holders.
Taxation:
Rental/share of rental income is also taxed at slab rate.
TDS:
Applicable at 10%.
4. Capital Gains From Selling REIT Units
When you sell your REIT units, two types of capital gains apply:
Short-Term Capital Gain (STCG)
If sold within 3 years
Tax: 15%
Long-Term Capital Gain (LTCG)
If sold after 3 years
Tax: 10% (exempt up to ₹1,00,000 per financial year)
| Holding Period | Capital Gain | Tax Rate |
|---|---|---|
| < 3 years | STCG | 15% |
| > 3 years | LTCG | 10% above ₹1 lakh |
Total REIT Income Components
| Type of Income | TDS | Tax Treatment | Notes |
|---|---|---|---|
| Dividend | No | Tax-free if REIT SPV is old regime; else slab rate | Most investors receive tax-free dividends |
| Interest | 10% | Slab rate | Always taxable |
| Rental Income | 10% | Slab rate | Rare for retail investors |
| STCG (<3 yrs) | NA | 15% | Listed REIT units treated like equity |
| LTCG (>3 yrs) | NA | 10% above ₹1 lakh | Similar to equity taxation |
How REIT Income Is Taxed
Suppose you earn:
Dividend: ₹20,000 (SPV not in 22% regime → Tax-free)
Interest: ₹10,000 (taxable at slab)
Rental income: ₹5,000 (taxable at slab)
LTCG on units: ₹70,000 (within ₹1 lakh limit → Tax-free)
Total tax payable: Only on interest + rental (₹15,000 taxable at slab).
Do REITs Offer Tax Benefits?
Benefits:
Dividend may be 100% tax-free
Lower LTCG tax (10%) than real estate property sale
No stamp duty headaches
No property maintenance cost
TDS is minimal
Limitations:
Some income is taxed at slab rate
No Section 80C benefits
Dividend tax depends on SPV structure
REITs in India (2026)
Currently listed REITs include:
Embassy Office Parks REIT
Mindspace Business Parks REIT
Nexus Select Trust REIT
All offer:
✔ Stable income
✔ 90% mandatory distribution
✔ High-quality Grade-A commercial assets
REITs vs. Physical Real Estate (Comparison Table)
| Feature | REIT | Physical Real Estate |
|---|---|---|
| Minimum Investment | Very low | High (₹30–80 lakh) |
| Liquidity | High (stock market) | Low |
| Maintenance | Zero | High |
| Taxation | Clear & structured | Complex |
| Returns | 6–10% yield | 2–4% rental yield |
| Diversification | High | Limited |
Expert Commentary
As a financial advisor, I often recommend REITs to investors looking for stable rental-like income without the burden of owning property. Understanding taxation is crucial, as many investors mistakenly assume all REIT payouts are tax-free.
Dividends can be tax-free, but interest and rental components are always taxable at slab rates, which can impact net returns. Transparency is key.
Key Takeaways
REIT income has multiple components, and each is taxed differently.
Dividends are tax-free only if REIT’s SPV stays in old tax regime.
Interest and rental income are taxed at slab rate.
Selling REIT units attracts equity-like capital gains tax.
REITs are tax-efficient but not tax-free.
FAQs
1. Are REIT dividends taxable in India?
Tax-free only if SPV hasn’t opted for new 22% corporate tax regime.
2. Is REIT interest income taxable?
Yes, fully taxable at slab rate.
3. What is the tax on selling REIT units?
STCG @ 15%, LTCG @ 10%.
4. Is TDS deducted on REIT payouts?
Yes, 10% on interest and rent; none on dividends.
5. Are REITs better than rental property?
Yes for liquidity and lower taxes; depends on goals.
6. How often do REITs pay income?
Quarterly or half-yearly.
7. Can NRIs invest in REITs?
Yes.
8. Do REITs offer tax benefits under 80C?
No.
9. What happens if dividend turns taxable?
It is added to your income and taxed at slab.
10. Are REIT units treated like equity?
Yes, for capital gains.
11. Is REIT income predictable?
More predictable than mutual funds; depends on occupancy.
12. Do REITs pay monthly income?
Most pay quarterly.
13. Are REIT losses tax deductible?
Capital losses can be set off.
14. Which REIT is best for beginners?
Embassy or Mindspace depending on risk appetite.
15. Is REIT investment safe?
Regulated by SEBI, generally stable.
Conclusion
REITs offer an accessible, low-cost way to earn stable real estate income without owning property. Their taxation is straightforward once you understand the components. With proper planning, REITs can become a powerful source of passive income.
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Published on : 2nd December
Published by : SMITA
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