Definition
REIT/InvIT Distribution Taxation
Distributions from REITs and InvITs are taxed in the unitholder's hands by component — interest, dividend and return of capital — each carrying different tax treatment.
A REIT or InvIT distribution is not a single uniform payout; it is split into components such as interest, dividend and return of capital (amortisation/repayment of debt), and each is taxed differently in the unitholder's hands.
Interest and certain dividend portions are generally taxable, while the return-of-capital portion is treated as reducing your cost of units, effectively deferring tax until sale. The trust provides a breakup to help you report correctly.
This layered treatment makes the headline distribution yield different from the post-tax yield, so investors should understand the components before assuming a REIT/InvIT's income is fully tax-free or fully taxable.
Related terms
- REITA Real Estate Investment Trust is a SEBI-regulated, listed vehicle that owns income-generating commercial property and passes most of its rental income to unitholders as distributions.
- InvITAn Infrastructure Investment Trust is a SEBI-regulated vehicle that owns operating infrastructure assets like roads or power lines and distributes their cash flows to unitholders.
- Dividend TaxationDividends from Indian companies and mutual funds are taxable in the investor's hands at their slab rate, with TDS deducted by the payer above a threshold.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.