REITs & InvITs: Real Estate and Infrastructure Investing Without Buying Property

What Are REITs and InvITs?

A REIT is a SEBI-regulated trust that owns income-generating real estate — typically large commercial office complexes, business parks, and retail spaces — and distributes rental income to unitholders. An InvIT is structurally similar but holds infrastructure assets such as toll roads, power transmission lines, and pipelines, distributing the cash flows generated by these assets (tolls, lease payments, etc.).

Both are listed on stock exchanges (NSE/BSE) and can be bought and sold like shares through a regular demat account — no need to buy an entire building or interact with a builder.

How Returns Are Generated

SEBI regulations require REITs/InvITs to distribute at least 90% of their net distributable cash flows to unitholders, making the distribution yield a key part of their return profile — often higher than typical dividend yields on equity shares.

Taxation of REIT/InvIT Distributions

This is where REITs/InvITs get more complex than a typical mutual fund — distributions are often a blend of three components, each taxed differently:

• Dividend income: Generally taxable at the investor's slab rate as "Income from Other Sources", though portions may be exempt depending on whether the underlying special purpose vehicle (SPV) has opted for the concessional corporate tax regime.
• Interest income: Taxable at slab rate as "Income from Other Sources" — TDS is typically deducted by the trust.
• Return of capital (repayment of debt/amortisation): Not taxable at the time of receipt, but reduces your cost of acquisition — increasing the capital gains (or reducing the capital loss) when you eventually sell the units.

Capital Gains on Sale of Units

REIT/InvIT units held for more than 12 months on a recognised stock exchange (subject to securities transaction tax) qualify for long-term capital gains treatment at 12.5% on gains above ₹1.25 lakh per year (similar to listed equity shares under Section 112A), while units held 12 months or less attract 20% short-term capital gains tax under Section 111A.

REITs vs Buying Physical Property

Risks to Consider

REIT/InvIT unit prices can fall with rising interest rates (as yields become less attractive relative to bonds), tenant vacancies or toll-revenue shortfalls can reduce distributions, and the universe of listed REITs/InvITs in India remains relatively small, meaning limited diversification across different trusts even though each trust holds a diversified portfolio of underlying assets.