Real Estate Investment Trusts and Infrastructure Investment Trusts have become a genuinely popular way for NRIs to get exposure to Indian commercial property and infrastructure without the headache of owning physical assets from abroad. Units in listed vehicles like Embassy REIT, Mindspace Business Parks, Brookfield India Real Estate Trust, or infrastructure InvITs such as IndiGrid and IRB InvIT trade on the stock exchange like any other security, and NRIs can buy them through a normal demat account. What trips people up is the taxation, because a REIT/InvIT payout isn't one kind of income -- it's several, bundled into a single quarterly credit to your account.
Both structures are classified as 'business trusts' and taxed under a pass-through regime -- recently renumbered from Section 115UA under the Income-tax Act, 1961 to the corresponding provision under the Income-tax Act, 2025 -- meaning the trust itself generally doesn't pay tax on income it distributes; instead, the tax liability passes through to you as the unit holder, computed separately for each type of income in the distribution.
Four components, four tax treatments
A typical distribution statement breaks the payout into interest, dividend, rental income, and repayment of debt (return of capital). The trust usually routes its underlying assets through Special Purpose Vehicles, and the mix depends on how each SPV is financed and taxed.
Interest, paid by the SPV to the trust and passed through to you, is taxable in your hands. For non-resident unit holders it attracts TDS at 5% under the relevant withholding provision (Section 194LBA under the 1961 Act numbering), though this can be reduced under a DTAA if you furnish a Tax Residency Certificate and Form 10F. Dividend income is taxable only if the SPV paying it opted for the concessional 22% corporate tax rate under Section 115BAA -- in that case TDS applies at 10% or the DTAA rate, whichever is lower. If the SPV did not opt in and paid regular corporate tax, the dividend passed through to you is exempt, though TDS is often still deducted and needs to be reconciled. Rental income earned directly by the trust and distributed to you is generally exempt in your hands, but here too TDS is commonly withheld and refundable through your return. Repayment of SPV debt -- return of capital -- is not taxed as income at all when received; instead it reduces your cost of acquisition for the units, deferring the tax to the point of sale.
- Interest component -- taxable, 5% TDS for NRIs (or lower DTAA rate)
- Dividend component -- taxable only if the SPV used the 115BAA concessional regime, 10% TDS (or DTAA rate)
- Rental income component -- generally exempt, TDS still often withheld and refundable
- Return of capital component -- not taxed on receipt, reduces cost of acquisition for later capital gains
Selling the units: capital gains
Gains from selling listed REIT or InvIT units on the exchange are taxed as capital gains, using the same 12-month holding-period line as listed equity. Units held 12 months or less are short-term gains, taxed at 20% under the short-term capital gains provision (Section 111A under the 1961 numbering); units held longer are long-term gains, taxed at 12.5% under Section 112. For gains realised in FY 2025-26, the Rs 1.25 lakh annual exemption that applies to listed-equity long-term gains under Section 112A does not extend to REIT/InvIT units -- the 12.5% rate applies from the first rupee of gain. A Finance Act 2025 amendment brings business trust units within Section 112A from FY 2026-27 onward, so that exemption should start applying going forward; confirm the applicable year before you compute tax on a sale.
Remember to adjust your cost of acquisition downward for any return-of-capital distributions received during your holding period -- the trust's cumulative distribution statement will show this, and skipping the adjustment understates your taxable gain relative to what shows up in your Annual Information Statement, which is a common trigger for a mismatch notice. Securities Transaction Tax applies to the sale at the same rate as equity delivery trades and is not deductible while computing the gain.
Practical filing points for NRIs
You'll need ITR-2 (or ITR-3 if you have business income) -- ITR-1 has no schedule for business trust distributions or capital gains on listed securities. Report the interest and taxable-dividend components under Schedule OS, disclose exempt rental income in the exempt-income schedule even though no tax is due on it, and track return-of-capital distributions separately for cost-basis purposes rather than reporting them as income. Match every TDS deduction shown in your distribution statement against Form 26AS and your Annual Information Statement before filing; TDS withheld on components that turn out to be exempt (rental income, non-taxable dividend) is refundable, but only if you claim the credit correctly in the TDS schedule.