Section 115UA of the Income Tax Act - Taxation of REIT and INVIT, and Key Differnces

Taxation of REIT and INVIT is governed by section 115UA of the Income Tax Act. They are categorized as business trusts, for the purposes of taxation. 

Rent, interest and dividend income is taxed in the hands of unit holders, like they have earned the income themselves and not through the business trusts. This blog explains the taxation of business trust income in the hands of unit holders.

Key Highlights

• Dividend, interest and rent distribution of REIT and INVIT, is taxed under slab rates for resident unit holders. 
• For non-residents unit holders, dividend and interest are taxed at 10% and 5% respectively. Rental income is taxed at normal slab rates.
• TDS applies on business trust income streams except capital gains.

What is a REIT?

REIT stands for Real Estate Investment Trusts. The primary purpose of a REIT is to invest the funds mobilized in real estate projects and derive income from them. Most of the commercial real estate projects, for example, Embassy Office Parks, Mindspace business parks, Brookefield India Real Estate Trusts, operate under this business structure. SEBI regulations in India govern REITs.

What is an INVIT?

INVIT stands for Infrastructure Investment Trusts. These trusts function similarly to REITs, but are primarily engaged in core infrastructure activities like roads, bridges, power, telecom towers, etc. Like REITs, INVITs are also governed by SEBI regulations.

What is SPV?

Usually, the REITs and INVITs make investment activities not on their own, but through a Special Purpose Vehicle (SPV). The funds are transferred to SPV, and the investments are made in the name of SPV. This kind of business structure is prevalent in most REITs and INVITs.

Pass-Through Entity - Taxation

A pass-through entity is the status provided under the Income Tax Act, though not legally defined under the provisions of the act. An entity that connects two major persons, whose major function from a tax perspective is to pass on the income and investments between the two persons, is called a pass-through entity. 

Since REIT and INVIT collects funds and invests only through SPV (not directly), they are categorised as pass-through entities. REITs and INVITs are provided pass-through status under the provisions of the Income Tax Act when they make their investments through a Special Purpose Vehicle. Dividend, interest, and rental income of REIT and INVIT with an SPV attracts nil tax and nil TDS implications.

REIT and INVIT Taxation u/s 115UA - In the Hands of Unit Holders

The income derived from REIT and INVIT is one of the complicated provisions in the Indian Income Tax Law. Various kinds of income are generated when a person invests in REIT and INVIT securities. They can be broadly classified under the following heads:

• Dividend
• Interest
• Capital Gains
• Rent
• Others

The taxation of the income differs based on the kind of income and also the residential status of the unit holder in this case. 

Note: When the unit holders transfer their REIT and INVIT units, they are taxed as normal capital gains. Since these kinds of securities are usually listed on the stock exchange, sections 112A and 111A apply. Units sold after 2 years of purchase are taxed as Long Term Capital Gains, taxable at 12.5%, with an exemption up to gains of Rs. 1.25 lakh. Short-term capital gains are taxed at 20% under Section 111A.

Also, if the REIT and INVIT invest through SPV, and the SPV is taxed at the normal rate for companies (at 25%), then the dividend, interest, and the rental income earned are exempt from taxation under section 10(23FD). All the income that is taxed in the hands of REIT or INVIT is exempt in the hands of unit holders, under section 10(23FD).

REIT and INVIT TDS Implications

Wherever income tax implications arise, TDS implications arise as well, and the TDS rates need not be equal to the tax rates. The TDS rates for different kinds of income are as follows:

Differences Between REITs and INVITs

There are no differences between REIT and INVIT based on taxation. The following are the other differences between REITs and INVITs from an investment perspective.

How REIT & INVIT Taxes Affect Returns?

If you are in the highest tax bracket, i.e, all your other income falls under the highest slab rate (30%), then the rent, interest, and dividend income will be taxed at 30% for you. On the other hand, if your income level falls anywhere on the lower slabs, then the aforesaid income will be taxed at the lower slabs. Therefore, we can infer that your slab rate can influence the post-tax returns on your dividend, interest, and rental income.

This will not be applicable in case of capital gains, where all your returns are taxed at flat rates.

Recent Updates & Budget Changes

One of the major changes with respect to taxation of REIT and INVIT in the hands of unit holders, was made recently in 2025. So far, when the business trusts can be categorized as section 112A security, even then, the long-term capital gains were taxed at the maximum marginal rate. With effect from the current financial year, such long-term capital gains would be taxed at the beneficial rate of 12.5%, with an exemption of Rs. 1.25 lakh.

How to Report REIT and INVIT Income in ITR?

If you have capital gains income on transfer of REIT and INVIT, rental income, dividend, or interest income, you can opt for ITR 2. Since the income from REIT and INVIT is categorized as pass-through income, the returns should be filed under ITR 2.