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Real Estate Investment Trusts (REITs) and its growth in India

  • Writer: tax comply
    tax comply
  • May 14
  • 3 min read

India's real estate landscape is undergoing a structural transformation, driven by regulatory innovation, institutional participation, and global capital flows. At the heart of this evolution lies the rise of Real Estate Investment Trusts (REITs)—a vehicle that is democratizing access to high-grade commercial real estate while unlocking long-term capital efficiency.


What Are REITs and Why Do They Matter?


REITs are investment instruments that allow individuals and institutions to invest in income-generating real estate—like office parks, retail centers, and industrial spaces—through units traded on stock exchanges. These vehicles offer investors regular income in the form of dividends, while also allowing for capital appreciation over time.

By pooling funds from investors, REITs acquire and manage high-value real estate assets, delivering both income and growth—without the need for investors to own physical property.


Key Benefits of REITs

  • Regular Cash Flows: Distributions typically made at least twice a year from rental income.

  • Liquidity: Units can be bought and sold like shares on the stock market.

  • Transparency: Strong regulatory framework under SEBI ensures disclosure and governance.

  • Diversification: Allows exposure to a basket of real estate assets across locations.

  • Tax Efficiency: Structured to pass through income to investors with minimal leakage


India’s Listed REIT Landscape

India currently has four listed REITs:

  • Embassy Office Parks REIT

  • Mindspace Business Parks REIT

  • Brookfield India Real Estate Trust

  • Nexus Select Trust (India’s first retail-focused REIT)

Three of these focus on commercial office spaces, while Nexus Select Trust owns a retail mall portfolio.


Global Perspective: India Catching Up

While REIT markets in the U.S., Japan, Singapore, and Australia are mature—with over 1,000 REITs and a combined market capitalization exceeding USD 2 trillion—India’s REIT market is still in a high-growth phase. Yet, the early signs are encouraging, supported by policy push, demand for Grade A office space, and a growing investor base.


Regulatory and Structural Strength

India’s REITs operate within a robust regulatory environment:

  • Minimum 80% of asset value must be in completed and income-generating properties.

  • At least 90% of net distributable cash flows must be distributed to investors semi-annually.

  • Leverage limits and related-party transaction safeguards are enforced by SEBI.


Participation and Democratization

Investors can participate in REITs with amounts as low as one unit’s value, making it accessible even to retail investors. Meanwhile, institutions—including mutual funds, insurance companies, pension funds, and FPIs—have found REITs to be a resilient, income-generating alternative in their portfolios.


Taxation of REIT Income in India

Type of Income

Tax Treatment

TDS (Tax Deducted at Source)

Dividend Income

 Taxable if SPV opts for Section 115BAA (at investor's slab rate).


 Exempt if SPV does not opt for Section 115BAA.

10% TDS if income exceeds ₹10,000 p.a. 

Interest Income

Taxable at unitholder’s applicable slab rate.

10% TDS if income exceeds ₹10,000 p.a. 

Capital Gains


• Short-Term (STCG)


• Long-Term (LTCG)

• STCG (held < 1 year): Taxed at 20%


• LTCG (held > 1 year): Taxed at 12.5% (if gains exceed ₹1.25 lakh annually); no indexation benefit

No TDS currently prescribed on capital gains

Rental Income

Taxable at the unitholder’s applicable slab rate.

 

FEMA Perspective: REITs as an Investment Vehicle for NRIs


REITs are fully accessible to NRIs and OCIs under the Portfolio Investment Scheme (PIS) or through Non-Resident Demat accounts. From FEMA's perspective:

  • Investments must be routed via NRE/NRO accounts or via FPI routes (in institutional cases).

  • Proceeds (dividends or capital gains) are freely repatriable (subject to applicable taxes).

  • NRIs must adhere to pricing guidelines and sectoral caps, though REITs are considered more liberalized than direct real estate investments.

This makes REITs a compliant, tax-optimized, and convenient gateway for NRIs to invest in India’s real estate boom without owning physical assets.


Conclusion:

REITs are not merely a new asset class—they are an enabler of financial inclusion, urban transformation, and cross-border capital mobilization. For investors—retail, institutional, or NRI—REITs offer a regulated, diversified, and rewarding long-term investment.

As REITs mature in India, they will form a critical pillar of the country’s capital markets infrastructure and urban economy, with a significant role for finance professionals in shaping this journey.



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